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As Indian investors adopt a cautious approach ahead of the inauguration of Donald Trump as 47th US President and his comments with focus on tariffs, this week was a mixed bag for the domestic benchmark indices. 

After three days of gains, the domestic market ended on a weak note on Friday as large-cap IT and banking stocks saw higher underperformance due to a cautious outlook on discretionary spending for the former and subdued deposit and credit growth, as well as tighter liquidity conditions for the latter.

In contrast, public sector banks (PSUs) performed well during the week.

Sensex ended the week at 76,619.33 and Nifty settled at 23,203.2. The Nifty remained under bearish pressure for yet another session.

Nifty Bank ended at 49,540.6 down by 738.10 points or 1.50 per cent. The Nifty Midcap 100 index closed at 54,607.65 after climbing 123.85 points, or 0.23 per cent, while the Nifty Smallcap 100 index closed at 17,672.05 after adding 28.75 points, or 0.16 per cent.

Since the recent peak in September 2024, the Nifty 50 has fallen by 11.5 per cent, with the Midcap index down 12 per cent and the Smallcap index sliding 11 per cent.

The Q3 earnings season will be critical in restoring confidence and stability.

According to market watchers, investors are increasingly adopting a risk-averse stance due to strengthening of the dollar. Furthermore, rising uncertainty over potential economic policies from the new US administration impacted overall sentiments.

Overall, the market is expected to remain cautious in the short term due to moderate Q3 expectations, while persistent FII outflows could add to higher volatility.

Looking ahead, the incoming US President’s policies and comments will be keenly watched with focus on tariffs. Higher inflation in Japan or tighter policy from BoJ will weigh on market sentiments, said experts.

This is a time to act with clarity, not panic. The market correction offers an opportunity to separate the wheat from the chaff, focussing on resilience and growth potential, said Krishna Appala from Capitalmind Research.