Where is the market headed?
As the new year begins, there is a strong sense of optimism for 2026. There are many reasons to believe this will be a fantastic year for the markets. The market has consolidated for approximately 15 to 16 months now. Typically, consolidation periods last between 15 months and 2 years, and historical trends suggest that investors can expect great returns once this phase concludes.
The market today was very flat and listless. Most markets worldwide observe a holiday on January 1st due to very low participation, and the Indian markets were no different, seeing very low volumes. It is worth questioning why the exchanges or regulators do not designate this day as a holiday to allow people to enjoy the first day of the year. Despite the quiet nature of the day, there were very sharp movements in tobacco stocks that caught the market’s attention.
ITC experienced a significant breakdown from a head and shoulders pattern, with the stock falling nearly 9% to 10% by the close. This downward move persisted throughout the day. This volatility follows news regarding excise taxation, which suggests that excise will be applied on top of a new 40% GST. While there is still some confusion surrounding the details, the market price is usually the most reliable indicator of how investors are interpreting the news.
Godfrey Phillips also lost about 15%, signaling a deeper story within the sector. Unless a clarification is issued in favor of these companies, the technical pattern looks quite weak. From a chartist’s perspective, relative strength for ITC has been declining since 2023 even while the stock made newer highs. Such divergence often suggests that price distribution and a subsequent correction are likely.
Market Overview
The Nifty had a flat day, moving just 0.06%, but it remains very close to an all-time high. As volumes pick up next week and budget expectations begin to build, the market could be in a launch stage, ready to race higher. Momentum trends across the short, mid, and long term are all positive for the Nifty.
Nifty Next 50
The Nifty Next 50 was up for the third consecutive day, moving closer to the highs seen in October.
Nifty Mid and Small Cap
Mid-caps also rose 0.4%, with all trends pointing upward. This alignment of short, mid, and long-term trends represents a powerful situation for investors, offering the highest probability of success. The mid-cap index is forming an inverted head and shoulders pattern, which could lead to a significant zoom in the future. Small caps lagged slightly today at -0.1%, where the mid-term trend remains negative despite positive long and short-term trends.
Bank Nifty
Banking stocks performed well, closing near a new all-time high with a gain of 0.22% for the day.
GOLD
In commodities, gold was somewhat sluggish with a negative short-term trend, though it remains at a very high level compared to one year ago. Silver remains strong in terms of overall trends despite being down 0.22% for the day.
SILVER
Advance Decline Ratio
The advance-decline ratio was almost perfectly flat with 253 advances to 247 declines.
Heat Maps
Most stocks ended in the green, with the only major losses seen in ITC, Tata Consumer, Bajaj Finance, ONGC, Asian Paints, Bharat Electronics, and ICICI Bank.
The Nifty Next 50 heat map showed losses in United Spirits, Dmart, and PidiLite, while seeing gains in PFC, REC, and public sector banks.
Adani Power moved up 4% today, while Vodafone Idea saw a recovery of about 8%. This follows news that the Supreme Court and the government have frozen the dues the company needs to pay until 2041, providing a long runway for survival. While there was some “sell on news” volatility yesterday that saw the price swing between 13 and 10 rupees, the recovery today and the promoter pledge of 5,800 crore rupees suggests a potential path forward for the company.
Mover Of The Day
Sectoral Overview
In sectors, the FMCG index was dragged down 3.17% primarily by ITC. The auto sector, however, rose 1% to hit a new high; it has notably doubled in value over the last three years. Identifying which sectors are performing well and selecting stocks within them remains a fantastic way to utilize momentum.
Sector of the Day
Nifty FMCG Index
U.S. Market
US markets were down across all indices in the previous session, with companies like Palantir and IBM seeing drops between 1.3% and 1.9%. This selling pressure on December 31st might be linked to the end of the tax year, and the true direction will be clearer when their markets reopen on the 2nd. Interestingly, an analysis by JP Morgan suggests that when US markets have a forward price-to-earnings ratio of 23 or higher, the returns for the following 10 years are historically poor.
Tweet Of The Day
With the US market currently above that level, the 10-year outlook appears bleak. Ray Dalio shares a similar sentiment regarding India’s potential, suggesting that if US returns stall, there will be a significant flow of capital toward the Indian market.
