Markets ended lower this week as geopolitical uncertainty, monsoon concerns and MSCI-driven flows triggered volatility. However, a sharp fall in crude oil prices is raising hopes of easing macro pressures heading into June.
Summary
Markets ended lower this week as geopolitical uncertainty, monsoon concerns and MSCI-driven flows triggered volatility. However, a sharp fall in crude oil prices is raising hopes of easing macro pressures heading into June.
India’s equity markets ended a volatile week in the red, as a combination of geopolitical uncertainty, weak monsoon forecasts and MSCI-driven institutional flows weighed on sentiment. Yet falling crude oil prices are emerging as a key positive heading into June, with experts hoping the resulting improvement in the rupee and broader macroeconomic conditions could help stabilize markets.
The Sensex fell 0.8% during the week to close at 74,775.74, while the Nifty 50 declined 0.7% to settle at 23,547.75. Friday’s session captured the market’s nervous mood. The Nifty opened on a strong footing, briefly crossing the crucial 24,000 mark on strong global technology cues before a sharp wave of selling in the final hour erased gains.
Once the index decisively breached the 23,700 support level, stop-loss triggered, long unwinding and derivative-led selling accelerated the selloff, leaving the Nifty 50 down 1.5% and the Sensex 1.4% lower by the close. The uncertainty also pushed India VIX up more than 6.5%, reflecting heightened investor caution ahead of the weekend.
The selloff was amplified by the latest MSCI index rebalancing. While India’s weight in the MSCI Global Standard Index remained stable at 12.3%, the inclusion and exclusion of several stocks triggered significant passive fund repositioning. Nuvama Alternative & Quantitative Research estimates the rejig could result in net outflows of nearly $1 billion, driven largely by weight reductions in heavyweight large-cap stocks. However, because of the rejig NSE cash market turnover surged to a record ₹2.87 trillion on Friday, surpassing the previous high of ₹2.71 trillion recorded on 4 June 2024.
Analysts noted that while the MSCI-related selling was largely technical and mechanical, broader sentiment was also hurt by uncertainty surrounding a possible extension of the US-Iran ceasefire arrangement. At the same time, the India Meteorological Department’s below-normal monsoon forecast (rainfall at 90% of the long-period average) raised concerns over food inflation and rural demand, particularly amid growing fears of an El Niño weather pattern.
The weakness capped a difficult month for domestic equities. The Nifty ended May nearly 2% lower, while the Sensex declined around 3%, as repeated setbacks in Middle East peace efforts and domestic macro concerns kept investors cautious.
Power play
Sectoral trends, however, reflected pockets of optimism. Telecom and power stocks emerged as the week’s top performers, gaining nearly 4%, while FMCG and healthcare were among the key laggards.
V K Vijayakumar, chief investment strategist at Geojit Investments, said the rally in power stocks is increasingly being driven by structural growth themes rather than defensive positioning. “Explosive growth in data centres, the transition to renewable energy and rising residential cooling demand are creating a powerful long-term demand story for power,” he said, while cautioning that execution risks remain significant.
Global divide
India’s performance remained mixed relative to global peers. While domestic markets outperformed Indonesia, Brazil and Hong Kong, they lagged South Korea, Taiwan and Japan, which topped the weekly leaderboard with gains of 5-8%.
According to Vijayakumar, the global AI trade continues to dominate investor flows. Strong earnings expectations for semiconductor giants such as TSMC, Samsung and SK Hynix have helped justify elevated valuations and sustain capital flows into technology-heavy markets.
The same forces continued to shape foreign investor behaviour. Foreign portfolio investors (FPI) remained net sellers in May, pulling out ₹34,469 crore from Indian equities, taking cumulative outflows in 2026 to nearly ₹2.26 trillion. Higher crude prices earlier in the month, rupee weakness and attractive opportunities in AI-linked global markets kept foreign investors on the sidelines.
Crude relief
However, analysts see early signs of relief emerging. Brent crude fell below $100 per barrel this week and ended May more than 17% lower, reflecting a sharp unwinding of the geopolitical risk premium. The rupee also outperformed its Asian peers, aided by falling oil prices and likely intervention by the Reserve Bank of India (RBI).
“The sharp dip in Brent crude is a very positive development,” Vijayakumar said. He noted that if a US-Iran deal materialises, Brent could fall toward $85 per barrel, while a return to pre-conflict conditions in the Strait of Hormuz could push prices closer to $80 by the end of June.
May proved to be a volatile month for markets. Looking ahead, investors will closely track developments in US-Iran negotiations, the status of the Strait of Hormuz, the RBI’s monetary policy decision and upcoming GDP data for clues on the direction of markets in June.
