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Indian equity markets are likely to make a cautious start on last trading day of 2025. Investors may remain cautious amid persistent fund outflows from foreign institutional investors who offloaded equities worth Rs 3,844.02 crore. However, traders are likely to take some support with government saying India has surpassed Japan to become the world's fourth-largest economy with a size of $4.18 trillion, and is poised to overtake Germany to become the third-largest by 2030.

Some of the key factors to be watched:

RBI to conduct OMO purchase auction worth on January 5: The Reserve Bank of India has said it will conduct an auction of open market operations purchase of government securities worth Rs 50,000 crore on January 5, 2026.

India's cement industry to grow 6-7% in FY27: Rating agency ICRA in its report said the Indian cement industry is anticipated to sustain its mid-single-digit growth journey in the nest fiscal, helped by the factors including steady demand from housing and infrastructure projects.

Tourism sector needs more targeted approach to realise full potential: A Crisil Intelligence report said India's tourism sector requires a far more targeted, ecosystem-wide approach including strengthening micro, small and medium enterprises (MSMEs) capabilities, improved destination infrastructure and service quality to convert high visitor volumes into higher incomes and realise its full potential.

Sugar stock will be in limelight: The government has allowed exports of organic sugar up to 50,000 tonnes per fiscal year. The exports are subject to the provisions of APEDA (Agricultural and Processed Food Products Export Development Authority).

Telecom stocks will be in focus: Telecom regulator Telecom Regulatory Authority of India has recommended that the sale of foreign telecom service providers' SIM cards meant for use in for-export M2M and IoT devices should be regulated via a light-touch service authorisation under the Telecom Act.

On the global front: The US markets ended lower on Tuesday after minutes of the Federal Reserve's (Fed) latest monetary policy meeting reiterated officials' mixed views about the outlook for interest rates. Asian markets are trading mixed on Wednesday, tracking cues from Wall Street overnight.

Back home, Indian equity benchmarks ended on a flat note in the volatile session on Tuesday amid thin year-end trading as persistent foreign fund outflows weighed on investors' sentiment. Foreign institutional investors offloaded equities worth Rs 2,759.89 crore on Monday, according to exchange data. However, stronger rupee and strong November IIP growth provided some respite. Finally, the BSE Sensex fell 20.46 points or 0.02% to 84,675.08 and the CNX Nifty was down by 3.25 points or 0.01% to 25,938.85.

Some of the important factors in trade:

India on track to displace Germany from third rank in next 2.5-3 years: The government in its latest release has said that India has reached a new milestone, overtaking Japan to become the world’s fourth-largest economy, with GDP valued at $4.18 trillion. 

Banking sector remains resilient backed by strong balance sheet, improved asset quality: The Reserve Bank of India (RBI) in its latest report has said that the banking sector remained resilient during 2024-25, supported by a strong balance sheet, sustained profitability and improved asset quality. 

Govt borrows Rs 3.84 lakh crore via treasury bills: The government plans to borrow Rs 3.84 lakh crore from short-term treasury bills spread over 12 weeks during the fourth quarter of the current financial year to meet short-term funding requirements.

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