Indian equity markets ended the week on a sour note, with the Nifty 50 sliding below the 23,550 mark and the Sensex surrendering more than 1,000 points in Friday's session. The Nifty 50 closed at 23,547.75, down 359.40 points, or 1.5%, while the Sensex ended 1,092.06 points lower, or 1.44%, at 74,775.74. The sharp downturn has left traders cautious as they head into June, with a long weekend break adding to the uncertainty.
Key Events on the Horizon
This week promises to be pivotal for Indian markets. The Reserve Bank of India's monetary policy decision is scheduled, alongside the release of fourth-quarter GDP figures and monthly auto sales data. These events will put earnings outlooks, interest rate expectations, and rural demand under the microscope.
Monsoon worries were a major factor behind Friday's sell-off. The India Meteorological Department's forecast of monsoon rainfall at 90% of the long-period average has reignited concerns about crop output and rising food prices. Vinod Nair, head of research at Geojit Investments, noted that the forecast has "heightened fears of elevated food inflation" in the coming months.
Broad-Based Selling
The sell-off was widespread, with mid-cap stocks falling 1.4% and small-caps dropping 1%. Amol Athawale, vice president for technical research at Kotak Securities, observed "selling pressure at higher levels" throughout the week. The Nifty ended the shortened week down 0.72%, while the Sensex lost 640 points for the week.
The rupee remained near its record lows, with the Reserve Bank of India likely intervening before spot trading began on Friday. State-run banks sold dollars, lifting the rupee's opening to 95.55 per dollar. India's foreign exchange reserves fell to $681.4 billion in the week to May 22, the lowest level in over a year, according to RBI data. The rupee had earlier touched a record low of 96.96 per dollar before central bank action steadied it.
Foreign Outflows Continue
Foreign portfolio investors continue to pull back from Indian equities. Overseas funds have sold a net $24.3 billion of Indian shares in 2026 so far, while buying approximately $25 billion in Taiwan, according to Reuters. VK Vijayakumar, chief investment strategist at Geojit Investments, warned that India is likely to remain "on the back foot" as long as this trend persists.
India's position in the global market-cap rankings is also under threat. Reuters reported that Taiwan's total market value has reached $4.89 trillion, nearly matching India's $4.92 trillion valuation on the NSE. India currently holds the fifth spot globally, but the gap with Taiwan has narrowed significantly.
RBI Decision in Focus
All eyes are now on the RBI's Monetary Policy Committee decision on June 5. Of 56 economists polled by Reuters, 44 expect the committee to hold the key repo rate at 5.25%. Aditya Vyas, chief economist at STCI Primary Dealer, told Reuters that "interest rates are not a good tool" for handling large supply shocks.
There is a risk that the market's relief trade could unravel. A weak start to the monsoon, another spike in oil prices, a firmer dollar, or escalating tensions in West Asia could quickly reignite inflation worries and trigger further foreign selling. The RBI's annual report highlighted geopolitics, global volatility, and foreign portfolio flows as key factors for equity market movements.
Choppy trading is expected to be the base case for trading desks, with little hope of a strong rebound. Siddhartha Khemka, head of research at Motilal Oswal Financial Services, said benchmark indices will likely remain "range-bound next week," trading between recent levels and remaining volatile due to MSCI index changes and West Asia uncertainty.
