Technical outlook: What’s in store for markets in 2026?

The author is an external contributor. Views are personal and do not reflect the opinion and views of PrimeInvestor.

The dawn of the new year mandates sharing the outlook for the upcoming year from a technical perspective. But we decided to break the norm and share some interesting facets of market behaviour in 2025, and what to expect in the upcoming year. We’d like you to view this more as a data crunching exercise! 

2025: A Year of Contrasts

While the year 2025 ended on a positive note with the Nifty 50 TRI recording 11.88% returns, it is likely that many equity portfolios might not reflect this enthusiasm. Unlike 2023 which was a broad-based bull market, the year 2025 was an interesting year of contrasts where handful of stocks did exceedingly well but most stocks were in a corrective phase. 

Here is the performance of the NSE’s broad based indices.

Here are a few observations:

• From the market indices, the Nifty 50 index was the biggest gainer last year. 
• Interestingly, the Nifty Next 50 Index was a laggard, posting returns of 2.9% in 2025, while the Nifty Midcap 50 index posted 8.6% return. 
• The broader market, represented by the Nifty MidSmallCap 400 index eked out a paltry 1.78% returns, reflecting the underperformance in relation to the Nifty 50 index.
• From the Strategy Indices universe, the Nifty 50 Equal Weight index did much better than the Nifty 50 index, notching up gains of 14.81% in 2025. Here, it is again interesting to note that the value-based factor indices were the top performers while the momentum-based ones ended up as laggards. 

The takeaway is that large cap stocks were the ones that attracted buying interest last year while the broader markets were cooling off. If we dig deeper into the stock performance from each market segment, the data looks more striking. 

For instance, as many as 202 companies from the Nifty 750 Index were down by at least 25% or more from their 52-week highs. Out of the Nifty 750 universe, there were only 210 stocks or about 29% of the universe that managed to outperform the 11.88% return generated by the Nifty 50 Total Returns Index. 

Sectoral Indices in 2025

Shifting the focus to the sectoral indices in 2025, it was the Nifty MidSmall Financial Services Index and the PSU Bank Index which were the top performers, followed by Nifty Metal and Nifty Auto. 

Nifty Consumer Durables, Nifty Realty, Nifty Media and the Nifty IT index were among the biggest losers and underperformers of 2025.

What to Expect in 2026

Let us look at historical behaviour of the Nifty 50 index over the past couple of decades to set our expectations. The Nifty 50 Total Returns Index has managed to deliver positive returns on a calendar year basis in 22 of the last 27 calendar years, or 81% of the time. Going by this track record, it will not be unreasonable to expect a positive return for the Nifty 50 index in 2026 as well. But how we capitalise on this behaviour is the key question.

Let us look at another metric which can help devise a strategy. The metric in question is the yearly drawdown from the high. The Nifty 50 index has corrected by at least 10% from the highs in almost all calendar years since 1998. 

So, wait for a fall of 10% from the peak in this year and one may then choose to deploy lumpsum in Nifty 50 index fund. A look at the daily rolling returns profile of the Nifty 50 index will be helpful in this context. 

Based on the above table, it is evident that for an investment horizon of 3 years and beyond, there is very little probability of negative returns in Nifty 50 index. More importantly, there is a 42% probability of earning returns more than 15% CAGR on a 3-year rolling returns basis. Therefore, using the probability of a correction from high in the Nifty can work in the long term.

Nifty 50 Outlook & Sectors to Focus 

The Nifty 50 Index has completed a nice cup and handle kind of a consolidation pattern off the September 2024 highs. This suggests that the index could soon resume the next leg of its uptrend. Here is the Daily Point & Figure chart with likely targets for this year.

As highlighted in the chart above, the likely targets are 27,470, followed by 28,250. Based on our experience with such targets in this charting method, we can say with some confidence that these targets are more likely to be achieved than not. But the timeframe within which they will be achieved is unpredictable. 

Until the major support at 24,000 is breached, expect these targets to be achieved sooner than later. A breach of 24,000 would be a cause of concern and the potential downside targets thereafter can be discussed when the breach occurs. For now, there is nothing bearish based on technicals for the Nifty 50 index. 

As highlighted consistently in the recent monthly updates, the broader markets are still struggling to stay afloat. The Nifty MidSmallCap 400 index is still a relative underperformer in comparison to the Nifty 50 index and hence be cautious and selective in the mid, small and micro-cap space.

Sectors to focus on: As far as the sectors are concerned:

• The top picks are Nifty Auto, Nifty PSU Bank and Nifty Metals. All these three sectors seem to have resumed their long-term outperformance cycle recently and could continue to be so going forward. The Nifty Bank index is also setting up well and remains a sector to focus on. But a word of caution here would not be out of place. All these sectors have turned overbought from a short-term perspective. Hence, a time and/ or price correction is likely in the near term.
• There are early signs of green shoots in the Nifty Pharma and Nifty IT sectors as well. It would be worthwhile to remember that these are still underperformers versus the Nifty 50 index and could offer short-term trading bets at best. These two sectors must display relative outperformance before considering meaningful medium to long term exposures. 

As always, we shall update targets and the outlook for the sectoral indices as well as targets in the Nifty 50 in the our monthly technical outlook updates.