Markets enter the first week of June facing a series of headwinds. Prospects for peace in West Asia remain uncertain, the Reserve Bank of India is set to review monetary policy this week, and a forecast of significantly weaker monsoon rainfall has heightened inflation concerns. Crude oil prices are climbing again, adding to the challenges confronting investors.
The resumption of India-US trade agreement negotiations offers one of the few positive developments. Overall market sentiment remains cautious.
Gift Nifty closed at 23,722.50 in overnight trading at GIFT City on Friday and rose to 23,728 on Monday morning, indicating a weak opening for Indian equities.
The Reserve Bank's Monetary Policy Committee (MPC) begins its meeting on Wednesday, with Governor Sanjay Malhotra scheduled to announce the outcome on Friday morning.
While inflation risks are mounting, the consensus view is that the RBI will leave the repo rate unchanged at 5.25 percent. Some economists argue that higher rates are justified under current conditions, but the government's preference for supporting growth is expected to influence policy.
Even if rates remain unchanged now, experts believe the central bank may have to raise rates by 0.50-0.75 percentage points during the current financial year.
The RBI is also expected to revise its forecasts, lowering GDP growth estimates while raising inflation projections. Markets are also watching for measures aimed at supporting the rupee.
Negotiations on the proposed India-US trade agreement resume on Monday. Discussions held in New Delhi last week by US Secretary of State Marco Rubio are believed to have helped advance talks.
India, however, remains cautiously optimistic. New Delhi may have to accept the 18 percent tariff framework offered in February. India is still awaiting clarity on tariff rates applicable to competing countries.
The Trump administration had previously proposed a 25 percent tariff, along with an additional 25 percent levy linked to purchases of Russian oil. US secretary of state Rubio has reportedly assured India that accepting the 18 percent arrangement would help avoid punitive duties arising from investigations under the Super 301 provisions.
Talks aimed at securing a US-Iran ceasefire agreement continue to move slowly. US President Donald Trump has proposed changes to the draft agreement, which are currently under Iranian review.
Trump said on Saturday that he was in no hurry to finalise a deal. Reports also emerged suggesting Iranian President Masoud Pezeshkian had submitted his resignation amid allegations that the Islamic Revolutionary Guard Corps had effectively taken control of governance. Official sources denied the reports. Meanwhile, Israeli military operations in Lebanon have intensified.
Hopes for a diplomatic breakthrough with Iran and continuing enthusiasm surrounding artificial intelligence helped US markets reach fresh record highs.
During May, the Nasdaq gained 8 percent, the S&P 500 rose 5 percent and the Dow Jones advanced 3 percent. Technology stocks led the rally. Shares of Micron Technology surged 88 percent during the month, while Qualcomm climbed 40 percent.
Strong earnings and improved guidance from Dell Technologies sent its shares soaring 33 percent on Friday.
The Dow Jones Industrial Average rose 363.49 points (0.72 percent) to close at 51,032.46. The S&P 500 gained 16.43 points (0.22 percent) to 7,580.06, while the Nasdaq Composite added 55.15 points (0.21 percent) to finish at 26,972.62.
US futures were trading higher on Monday morning. Dow futures gained 57 points (0.12 percent), S&P futures rose 18 points (0.23 percent) and Nasdaq futures advanced 136 points (0.45 percent).
Among Indian ADRs in New York, HDFC Bank rose 0.51 percent during regular trading and gained a further 1.43 percent after hours to close at $24.12.
ICICI Bank ended at $26.27 after modest gains in both regular and after-hours trading.
Infosys recovered in post-market trading to close at $12.71, while Wipro fell further to $2.30.
European markets ended higher on Friday amid hopes for stability in the Gulf region. Defence stocks continued to rally after a Russian drone reportedly crashed in NATO member Romania.
Asian markets were mostly higher on Monday. Japan's Nikkei gained 1.10 percent, while South Korea's Kospi surged to another record high, prompting concerns that valuations may be overheating.
Hong Kong's market rose 0.85 percent, while Shanghai opened marginally lower.
Indian equities fell sharply on Friday after fresh uncertainty over the Iran situation and a weaker monsoon forecast from the weather department.
Heavy foreign institutional selling added to the pressure, dragging benchmark indices down by around 1.5 percent.
All sectors except information technology declined significantly. Strong quarterly results helped Coffee Day Enterprises, Supriya Lifescience and Tribhovandas Bhimji Zaveri jump 20 percent each.
The Sensex fell 1,092.06 points (1.44 percent) to 74,775.74, while the Nifty dropped 359.40 points (1.50 percent) to 23,547.75. Bank Nifty declined 614.65 points (1.12 percent) to 54,239.20.
Market breadth remained weak. On the BSE, 1,611 stocks advanced while 2,673 declined.
India's weather department now expects southwest monsoon rainfall to be only 90 percent of the long-term average.
Below-normal rainfall is forecast across major agricultural regions, raising concerns about lower production of foodgrains, oilseeds, pulses and sugar.
A weaker harvest could fuel inflation, reduce rural incomes and dampen consumption. Companies in the two-wheeler, FMCG and consumer durable sectors are likely to face demand pressures if rural spending weakens.
Foreign portfolio investors were net sellers of ₹21,105.86 crore on Friday, one of the largest single-day outflows in recent months.
Rebalancing of MSCI indices contributed to the selling. Total foreign outflows during May reached ₹32,963 crore, taking cumulative withdrawals since January 1 to about ₹2.25 lakh-crore.
High valuations remain a key concern. The Nifty trades at around 18 times expected earnings, while several companies in East Asia and the US are available at 12-14 times earnings, offering better value for global investors.
Gold climbed on Friday despite improving hopes of peace in Iran. Spot gold rose $43.50 to close at $4,540.30 an ounce and was trading around $4,530 on Monday morning.
In Kerala, 22-carat gold rose ₹160 per sovereign on Friday to ₹1,15,160.
Silver climbed to $75.66 an ounce. Platinum traded at $1,936, palladium at $1,348 and rhodium at $8,450.
Industrial metals posted strong gains. Copper rose 0.74 percent to $13,612.70 a tonne.
Aluminium touched a record high of $3,685 before closing at $3,665.04. Lead, zinc, nickel and tin also advanced.
In Bangkok, RSS-3 rubber was quoted at $295.20 per quintal and RSS-1 at $298.70. In Kerala, RSS-4 rubber climbed to ₹25,650 on Saturday.
Cocoa prices fell 4.29 percent on Friday to $3,923 a tonne.
Market participants continue to assess the impact of the El Niño weather pattern on global cocoa production.
The US Dollar Index fell to 98.91 on Friday before recovering to 99.07 on Monday morning.
The euro weakened to $1.1647, while sterling slipped to $1.345. The Japanese yen fell to 159.43 per dollar and the Chinese yuan strengthened to 6.77 per dollar.
The yield on the US 10-year Treasury rose to 4.467 percent. Japan's government bond yield climbed to 2.684 percent, the highest level in four decades.
The rupee recorded one of its strongest recent advances on Friday, with the dollar falling 69 paise to close at ₹95.00.
The RBI is believed to have intervened aggressively in the foreign exchange market through dollar sales.
In the offshore non-deliverable forward market, the dollar eased from ₹95.26 to ₹95.12 on Monday morning.
Persistent uncertainty over the Iran-US situation kept crude oil prices elevated.
Brent crude was trading at $93.44 a barrel on Monday morning, while WTI crude stood at $89.93.
Cryptocurrency markets continued to trade lower.
Bitcoin remained below $73,500, while Ether was just above $2,000 and Solana traded slightly above $82.
Sensex: 74,775.74 (-1.44%)
Nifty 50: 23,547.75 (-1.50%)
Bank Nifty: 54,239.20 (-1.12%)
Mid cap 100: 61,723.80 (-1.33%)
Small cap 100: 18,138.80 (-0.85%)
Dow Jones: 51,032.46 (+0.72%)
S&P 500: 7,580.06 (+0.22%)
Nasdaq: 26,972.62 (+0.21%)
Dollar: ₹95.00 (-₹0.69)
Gold (ounce): $4,540.30 (+$43.50)
Gold (sovereign): ₹1,15,160 (+₹160)
Brent crude: $93.20 (+$2.08)