Markets to stay in consolidation mode

Indian markets are expected to remain in consolidation mode, tracking developments around the Middle East conflict, crude oil price movements, and the looming deadline for the imposition of US reciprocal tariffs. 

Defence and crude-linked stocks are likely to stay in focus amid the ongoing Israel-Iran tensions, while monsoon-dependent sectors such as fertilisers, agro-chemicals, and rural finance could witness momentum on expectations of above-average rainfall. On the other hand, reports of potential US tariffs on pharma imports are likely to keep Indian pharma stocks under pressure.Meanwhile, any progress in the US-India trade deal could boost market sentiments. 

Key macro-economic data to watch this week includes US Q1 GDP and retail inflation for May, commentary from the US Federal Reserve, manufacturing and services PMI of US and India.

Last week, Nifty50 ended higher by 1.6% at 25,112, showing resilience amidst ongoing geo-political tensions. In contrast, the broader market witnessed selling pressure with Nifty Midcap100 and Smallcap100 down by 0.3% and 1.0% respectively. Amongst sectors, Nifty Auto was the top gainer, rising by 1.5%, buoyed by reports that India may shift its rare-earth magnet imports to Australia after China’s recent export restrictions raised supply concerns. IT, banking and financial service indices followed suit with gains over 1% each. Real estate stocks climbed after PSU-bank major SBI announced 50bps cut in home loan rate, following RBI’s repo-rate cut earlier this month.

On the macro front, the US Fed policy was broadly in line with market expectations as it held the benchmark interest rate steady at 4.25%-4.50% - the fourth consecutive time since its last easing move of 25bps in December 2024. 

Electronic manufacturing services (EMS) companies are witnessing rising order inflows from high-margin segments like aerospace, industrials, automotive, and critical infrastructure, driven by higher work content, better execution visibility, and an improving product mix. We believe that the EMS industry will maintain its earnings growth momentum, driven by a surge in global orders, growing export prospects and strong traction across segments.

RBI’s final project finance guidelines are a positive for banks and NBFCs, especially when compared to the stricter 2024 draft. The most notable relief comes from the significantly eased provisioning requirements. This reduces capital drag while still maintaining prudence. Overall, the final norms strike a balanced approach, enabling continued flow of project finance with minimal impact on the profitability or balance sheet strength of lenders.

We expect Indian markets to remain largely range-bound, watching global developments and key macro-economic data. While persistent global uncertainty limits near-term upside, strong domestic macros, institutional support and sectoral triggers (monsoon, consumption, infra-push) could drive stock-specific movements.

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