Investors are likely to remain cautious this week ahead of the December quarter results,

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which will start pouring in from the second week of January. Though no major domestic data release is schedule for this week, except for manufacturing PMI and food inflation data, investors may remain concerned over the state of the economy amid rising fiscal deficit.

The trend of institutional flow will be tracked keenly as some experts believe European banks may soon pull back money invested in Asian markets to square off losses made on European government debts.

“Investors are cautious and reluctant to take any fresh position as we move into the New Year. The focus will shift to the earnings season, which starts from the second week of January. India Inc was struggling with high inflation and high interest rates in the first half. We expect the third quarter results to be worse than that of second quarter led by continued demand pressure and a sharp depreciation in rupee — which would not only increase input prices and impact operating margins, but also lead to continuing mark-to-market losses on forex borrowings,” said Vivek Mahajan, head of research at Aditya Birla Money.

FIIs pulled out some Rs 2,714.20 crore from equities in 2011. Sentiments are unlikely to improve as we headed into the New Year. “On the global front, euro zone debt worries are likely to haunt investors. There is speculation that European banks might sell off their investments in Asia to cover up losses from their holdings of risky European government debt,” said Gaurav Dua, head of research at Sharekhan.

Nifty ended 2011 at 4,624.30, and market experts believe the 50-pack index is facing strong resistance around 4,800 level.

“The fall seen last week suggests the 4,800-4,820 range has now become a significant resistance zone for the market. Therefore, the upward momentum is likely to resume only if the indices manage to sustain above this zone. In this case, we may see a further rally towards 4,881, 4,920 levels,” said Shardul Kulkarni, a senior technical analyst at Angel Broking.

“The January series has started with lower rollover compared with the recent months to tune of 67 per cent only. Technically, Nifty has short-term support near the 4,550 level; below this, the market may see a bloodbath. On the flip side, every bounce in the market will face a lot of supply with resistance in the 4,800-4,850 range. The market movement may remain mixed amid increased volatility, with resistance near 4,850 level,” said Saurabh Jain, assistant vice-president at SMC Global Securities.

Nifty and Sensex were down 1.90 and 1.80 per cent, respectively, last week. Dua said auto stocks will hog limelight after the December auto sales numbers ahead of the commencement of Auto Expo 2012 on January 7. Data on cement dispatches would also be tracked keenly.