Markets to consolidate with a positive bias

Indian markets are expected to continue its consolidation with a positive bias on the back of rate cut hopes in the upcoming RBI policy meet, optimism over US-India trade agreement and above-average monsoon forecast.

Markets are likely to react positively after India’s GDP for the Jan-Mar’25 quarter grew at a better-than-expected 7.4%, higher than the previous three quarters. Global market sentiments improved after a ruling from the U.S. Court of International Trade, which declared retaliatory tariffs unlawful and beyond presidential authority.

With the Q4 earning season coming to an end, investors will focus on macroeconomic indicators, sector-specific trends, and developments on the US tariff front to assess near-term market direction.

Key macro data releases this week include US and India’s Manufacturing and Services PMI, followed by Europe and India’s interest rate decision. Rate sensitive sectors such as PSU Banks, financials, realty, consumer durables amongst others would be in limelight ahead of the RBI policy announcement. Additionally, auto stocks will be in focus as Indian auto companies are set to announce May’25 sales data this week.

Last week, Nifty50 traded in a narrow range and closed with a marginal loss of 0.4% at 24,751. Despite the weekly decline, the index posted a 1.7% gain for May, marking its third consecutive month of positive returns. On a weekly basis, the broader market outperformed with Nifty Midcap100 and Smallcap100 rising over 1% each on sustained buying interest. Amongst sectors, PSU banks were the top performers, gaining 4.1% on optimism over potential RBI rate cut. Nifty Energy and Banking indices ended with modest gains of 0.7% and 0.6% respectively. Meanwhile, FMCG and Auto stocks witnessed profit booking, with the respective sectoral indices ending with a loss of 1-2% each.

Capital markets stocks were in momentum after SEBI notified new F&O rules. 

In an update on the power sector, power demand growth slowed to 2% in April, dampening investor enthusiasm in the sector. However, peak demand expectation remains robust. With FY26 peak power demand expected to be strong, investors can look at select opportunities in the power sector for long-term investment.

In a positive development on the domestic front, RBI announced a record dividend of Rs2.69 lakh crore to the central government for FY25, up 27% from Rs2.1 lakh crore in FY24. The dividend would significantly boost the government’s finances and help in maintaining the fiscal deficit target for FY26. Additionally, as per an update from NITI Aayog, India surpassed Japan to become the fourth-largest economy globally. However, investor sentiment was weighed down by weak Industrial Production (IIP) data, which slowed to an eight-month low of 2.7% in April. Meanwhile, India and the US are actively negotiating an interim trade agreement, with a US delegation expected to visit New Delhi soon. Both sides are targeting a resolution before July 8th, when the 90-day pause on reciprocal tariffs comes to an end.

In a global update, US Federal Reserve’s latest meeting minutes indicated a cautious stance amid heightened economic uncertainties. The Fed maintained the interest rate at 4.25%–4.50%, emphasising a “wait-and-watch” approach due to conflicting risks of persistent inflation and rising unemployment. Fed officials expressed concern that recent tariffs could elevate inflationary pressures while simultaneously slowing economic growth, leading to a probable stagflation scenario. This complicates policy decisions, as actions to curb inflation might further dampen growth. Investors need to stay attuned to upcoming US economic data and Fed communications for cues on potential policy shifts and its impact on the global markets.

(The author is Head Research, Wealth Management, Motilal Oswal Financial Services)