Equity markets likely to remain sideways

Indian equity markets are expected to remain sideways within a broader range. With the earnings season nearing completion, market focus is gradually shifting back toward global macros, geopolitical developments and policy-related triggers.

Persistent foreign outflows, elevated crude oil prices (around $109 per barrel) and the Indian rupee slipping to fresh record lows (~96.05/USD) continue to pose key macro risks for domestic markets.

However, a broadly in-line to positive Q4 earnings season, along with proactive government measures to manage external pressures—including steps to curb non-essential imports, stabilise domestic supply and contain inflationary risks—are providing some support to overall market sentiment.

At the same time, the lack of any visible resolution in the West Asia conflict continues to keep global investors on edge and uncertainty elevated across financial markets.

Key monitorables for next week include US CPI and PPI data, India’s April trade data, and US crude inventory figures.

Last week, equity markets remained under pressure amid heightened geopolitical uncertainty, persistent foreign outflows and concerns around elevated crude oil prices.

The Nifty50 declined 2.2%, while broader markets saw sharper correction, with the Nifty Midcap100 falling 2.2% and the Nifty Smallcap100 declining 4.6%, reflecting a clear risk-off sentiment and profit booking in broader markets. Sectorally, performance remained mixed.

Nifty Pharma (+2.2%) emerged as the top gainer, supported by defensive positioning and rupee depreciation benefiting export-oriented earnings, followed by Nifty Metal (+1.9%), aided by strength in global base metal prices and improved trade sentiment.

On the downside, Nifty Realty (-8.2%) was the worst performer amid concerns around higher interest rates, weaker liquidity sentiment and profit booking, while Nifty IT (-5.7%) witnessed sharp correction due to concerns around global growth, elevated US yields and continued pressure on technology spending outlook.

Auto (-4.4%), Bank (-2.9%) and Energy (-2.4%) also ended lower, reflecting concerns around demand moderation, FII-led selling in financials and the impact of elevated crude prices on broader corporate margins.

The Indian rupee remains under pressure, hovering near record lows at around 96 against the US dollar, driven by persistent FII outflows, elevated US bond yields and sustained dollar demand from oil importers.

The higher-for-longer US interest rate environment continues to attract capital toward dollar-denominated assets, while elevated Brent crude is worsening India’s import bill and stoking imported inflation risks, thereby limiting the RBI’s flexibility for aggressive rate cuts.

While the market has priced in some of these pressures, continued RBI intervention to stabilise the currency could tighten domestic liquidity conditions further. Until crude meaningfully corrects, export-oriented sectors may continue to outperform relative to import-dependent and discretionary consumption segments.

Adding to macro concerns, India’s wholesale inflation surged to a 42-month high of 8.3% in April, raising concerns around persistent cost pressures, margin compression and the possibility of a delayed rate-cut cycle by the RBI.

In response to these structural pressures, the government’s recent decision to raise customs duties on gold and silver to 15% is aimed at curbing non-essential imports and protecting foreign exchange reserves.

The move is structurally positive for commodity exchanges such as MCX, where heightened volatility typically supports trading activity, and may also benefit gold-financing firms through improved collateral values. However, organised jewellery players could face near-term demand disruption and margin pressure as higher costs are passed on to consumers.

Metal stocks also witnessed strong momentum this week, led by copper crossing a record $14,000 per tonne on the LME. Global trade sentiment may also improve following the Trump–Xi summit in Beijing.

Sectorally, defence, pharma and metals are likely to remain in focus. Defence stocks continue to benefit from strong earnings visibility, improving domestic order inflows and expectations of incremental bilateral defence cooperation during Prime Minister Modi’s upcoming international engagements. 

Overall, while intermittent recoveries may emerge, market sentiment is likely to remain highly sensitive to developments in West Asia, movements in crude oil prices, currency trends and foreign fund flows.

(The writer is Head of Research, Wealth Management, MOFSL)