FII selling persists as DIIs counter with heavy buying; Nifty key levels in focus

Foreign institutional investors extended their selling streak while domestic institutions continued aggressive buying, creating sharp market volatility. Auto stocks remained under pressure, and technical analysts flagged crucial Nifty support and resistance levels as investors shifted focus to the upcoming Union Budget.

Indian equity markets witnessed another volatile session as foreign institutional investors (FIIs) continued to offload shares, while domestic institutional investors (DIIs) stepped in with strong buying support. The contrasting strategies of these two major market participants have created a clear tug-of-war, keeping indices range-bound but highly reactive to news triggers.

On January 27, FIIs sold equities worth ₹3,068 crore in the cash market, extending their recent selling trend. In contrast, DIIs deployed a massive ₹8,999 crore, selectively accumulating beaten-down but fundamentally strong stocks. This divergence in positioning reflects differing outlooks on valuations, earnings recovery, and macroeconomic conditions.

According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, a notable feature of the current market setup is the large short position built by FIIs in index futures. This bearish derivative positioning is being reinforced by their sustained cash market selling. The rationale behind the FII strategy lies in India’s relatively high market valuations, modest earnings growth visibility, and continued weakness in the rupee.

On the other hand, DIIs remain supported by robust domestic fund inflows and expectations that corporate earnings could improve in the coming quarters. Their buying interest suggests confidence in India’s longer-term growth story, even as short-term volatility persists. Market participants believe that any positive trigger — such as policy support, global cues, or budget announcements — could force FIIs to cover their short positions, potentially sparking a sharp rally.

Meanwhile, the auto sector remained under pressure for a second consecutive session. The sell-off intensified following developments indicating a gradual reduction in tariffs on European car imports over the next five years. This move is expected to benefit global automakers such as Volkswagen, Renault, Mercedes-Benz, and BMW, raising concerns about competitive pressure on domestic manufacturers.

Maruti Suzuki shares fell around 2% after the company announced its December quarter results, adding to the sector’s weakness. Investors are assessing how pricing pressures and global competition could impact margins in the near term.

From a technical standpoint, analysts highlighted key levels for the Nifty index. Shrikant Chouhan, Head of Equity Research at Kotak Securities, said the zone of 25,000 and 24,900 serves as crucial support. As long as the index sustains above these levels, a pullback formation may continue.

On the upside, the 25,200 level is seen as immediate resistance. A decisive breakout above this mark could push the index towards 25,300–25,350. However, a breach below 24,900 could change sentiment sharply, prompting traders to reduce long positions. The suggested strategy is to consider buying above 25,200 with a tight stop loss near 25,000.

With the India–EU trade deal seen as a long-term positive, investor attention is now turning to the Union Budget on February 1, which could act as the next major catalyst for market direction.