Markets set to rise further this week

The Indian market is set for an upward trajectory this week, propelled by significant progress in US–China trade negotiations and sustained low domestic inflation.

Foreign institutional investors (FIIs) and domestic institutional investors (DIIs) have collectively injected around Rs 33,000 crore into the markets month-to-date in May, providing strong support.

Investors will be closely watching the ongoing fourth-quarter earnings season, with results expected from major companies including Divis Labs, DLF, Hindalco, Bharat Electronics, Amber Entertainment, Zen Tech, Power Grid, Max Health, and ONGC.

The markets witnessed a robust rally last week, with Nifty up by a significant 4.2 per cent to 25,020. The Nifty Midcap100 and Smallcap100 indices outperformed smartly, delivering returns of 9.5 per cent and 11.3 per cent, respectively. Notably, Nifty50 breached the 25,000 mark on Thursday, for the first time since October 2024, signalling a strong bullish comeback driven by robust domestic fundamentals, including low inflation, better-than-expected Q4 earnings, positive monsoon forecast, and the breakthrough in US-China trade talks.

On the global front, the United States and China agreed to significantly roll back tariffs on each other's goods for an initial 90-day period. The US agreed to reduce its overall tariffs on Chinese goods from 145 per cent to 30 per cent, while China agreed to cut its levies on American imports from 125 per cent to 10 per cent. The move could generate upbeat momentum across international markets, including India, where export‑oriented sectors such as IT, metals and electronics manufacturing stand to gain from America’s economic recovery. Additionally, US inflation for April slowed to 2.3%, the lowest since 2021, increasing hopes for a 25 basis points Federal Reserve rate cut in June

Defense stocks were in focus, with Nifty India Defense Index gaining 17.2 per cent last week. This surge was driven by strong domestic demand, increasing export optimism, and India's push for indigenous defence manufacturing. Aiding to this sentiment, was news reports of an Rs 50,000 crore addition to India's FY26 defence budget. Positive momentum was also seen in other public sector enterprises including railways, on the back of improving sentiments.

In a significant development on the trade front, Commerce Minister Piyush Goyal is currently in the US (May 17–20) for key trade negotiation. These discussions aim to explore an interim agreement on tariffs ahead of finalizing the first phase of a broader trade deal expected by Sept or October

India's retail inflation slowed to 3.16 per cent for April, and remained below the Reserve Bank of India's 4 per cent target for the third consecutive month. This provides scope for further rate cuts to support growth. IMD has announced that the southwest monsoon is likely to arrive four days earlier than usual, with onset over Kerala expected around May 27. This, along with the forecast of an above normal monsoon this year is expected to boost agri, fertilizer, agrochemical, rural FMCG, auto and rural finance stocks.

While the favorable tailwinds seem strong, investors should keep an eye on the upcoming trade discussions between India and the US. Further progress could solidify market gains. The focus will also remain on the residual Q4 earnings announcements and global economic cues. The forecast of a strong monsoon adds a layer of optimism to the domestic economic outlook.

(The author is head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)