The Indian domestic indices – Sensex and Nifty entered the final trading session of the first month of year on a weak note. The Sensex slipped in the intraday trading hours, falling 500 points. Similarly on the other side, the Nifty was trading below 25,300. The selling pressure across key indices has come ahead to the Union Budget 2026.
Furthermore, the broader market indices such as the Nifty Smallcap and midcap also traded in the red in the intrady trading seesion.
So, what are the key reasons driving this decline just as markets head into a crucial budget week?
Let’s take a look at the key factors every investor need to watch out for –
Selling pressure intensifies ahead of Budget Day
One of the major reasons behind the market’s weakness is caution ahead of the Budget 2026. Investors tend to reduce risk exposure before major policy events, and that trend appears to be playing out once again.
As the Budget draws closer, traders are reluctant to take fresh positions, especially in sectors that are sensitive to policy changes such as metals, oil and gas, and financials.
Foreign investors remain sellers
Foreign portfolio investor selling has continued to cast a shadow over the market. According to market data, foreign investors have sold Indian equities worth over Rs 43,000 crore so far in January.
On January 29 alone, foreign institutional investors sold shares worth Rs 394 crore. While domestic institutional investors stepped in as buyers and purchased shares worth Rs 2,638 crore.
Sectoral weakness led by metals and information technology
Sectoral trends also explain much of the market’s decline. Most Nifty sectoral indices were trading in negative territory during early deals. The Nifty Information Technology index fell over 1%, with all its constituents trading lower. Stocks such as Infosys and HCL Technologies were down nearly 2%
Metal stocks saw sharper cuts, with the metal index sliding nearly 4%. Stocks such as Hindalco and Tata Steel were trading lower.
Other sectors such as financials, oil and gas, and capital goods also remained under pressure.
Some pockets of the market, however, showed resilience. Fast-moving consumer goods, healthcare, and consumer durable stocks traded in the green
Rupee pressure and global uncertainties add to nervousness
The Indian rupee also remained under pressure. The currency opened near 91.91 against the US dollar and hovered close to its record low levels.
Global factors added to the cautious tone. Rising crude oil prices and ongoing geopolitical uncertainties have increased volatility across global markets
What analysts are saying
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, believes that markets are currently caught between opposing forces. “As we near the Budget Day there are headwinds and tailwinds for the market. Geopolitical issues continue to plague global trade with continuous threats of tariff weaponisation by Trump.”
He also pointed to crude oil prices as a concern. “The spike in Brent crude to near $ 70 is a headwind for Indian macros in general and industries that use oil as inputs, in particular.”
“However, these headwinds are likely to be countered by the positive message from the Economic Survey that projects GDP growth of 6.8 to 7.2% growth in FY27. With 3.5% headline inflation, India is headed for around 10% nominal GDP growth in FY27,” he added.
According to him, this could support earnings growth. “This has the potential to deliver 15 to 17% earnings growth in FY 27, imparting resilience to the market.”
He also noted changing trends in foreign investor behaviour and exports, adding, “The steady decline in FPI outflows during the last two days indicate a possible change in FPI strategy. Another significant trend is India’s success in diversification of its export market away from the US to other markets.”
Looking ahead, he added, “From early 2027 onwards this trend will gain momentum with the India- EU trade deal getting implemented. Overall, at this juncture, tailwinds are stronger than headwinds and this is positive for markets in the medium to long-term.”