Market Summary

Markets ended the week with marginal gains amid a highly volatile and range-bound trading environment. Benchmark indices witnessed sharp intraday swings throughout the week, driven by persistent rupee weakness, mixed global cues, sectoral rotation, and continued uncertainty around inflation and interest rates.

Consequently, the benchmark indices ended the week with modest gains. The Nifty 50 rose 0.32% to settle at 23,719.30, while the Sensex advanced 0.23% to close at 75,415.35. Broader markets remained relatively stable, with the midcap index gaining 1.09%, while the smallcap index ended largely flat.

Key Market Drivers

Global developments continued to dominate market sentiment during the week. Although easing geopolitical tensions and renewed diplomatic engagement between the US and Iran helped crude oil prices cool off from recent highs, energy markets remained volatile. Brent crude moderated marginally toward the $102–104 per barrel range, but elevated levels continued to raise concerns over imported inflation and pressure on corporate margins.

Currency volatility remained another key overhang. The Indian rupee weakened toward the 97-per-dollar mark amid persistent foreign capital outflows, elevated crude oil prices, and continued strength in the US dollar. Rising US bond yields and hawkish commentary from US Federal Reserve policymakers further added pressure on emerging-market currencies and flows. However, recovery in the final sessions helped the rupee rebound toward the 95.68 level.

On the domestic macro front, economic indicators reflected a mixed trend. The Index of Eight Core Industries rose 1.7% YoY in April 2026, supported primarily by growth in cement, steel, and electricity production.

Meanwhile, the HSBC Flash India PMI Composite Output Index remained strong at 58.1 in May, indicating continued expansion in private-sector activity. However, manufacturing activity softened further, with the Manufacturing PMI easing to 54.3, marking one of the weakest improvements in nearly four years amid high energy costs and trade disruptions linked to the Middle East conflict.

Services activity, however, remained resilient, with the Services PMI improving marginally to 58.9, supported by stable domestic demand and continued strength in services-led growth.

A key positive development emerged after market hours on Friday, when the Reserve Bank of India announced a record dividend transfer of ₹2.87 lakh crore to the central government for FY26. The higher-than-expected surplus transfer is likely to provide additional fiscal flexibility and support government spending amid an uncertain global backdrop.

Sectoral Snapshot

Sectoral trends remained mixed during the week, reflecting rotational participation across markets.

IT witnessed selective recovery after the recent correction, while realty and energy stocks also gained traction amid choppy market conditions. On the other hand, FMCG, pharma, and metal stocks traded subdued, largely due to profit booking following the recent up move.

Broader market participation remained selective. Midcaps continued to outperform benchmark indices and gained nearly 1.36%, while smallcaps posted muted gains of around 0.41%, indicating a more stock-specific approach among participants.

Key Events to Watch

The upcoming week is expected to remain highly sensitive to global macroeconomic developments, currency movements, and policy commentary.

To begin with, participants will closely assess the impact of the RBI’s record dividend transfer on liquidity expectations, fiscal flexibility, and government spending prospects going forward.

Investors will also monitor crude oil prices, developments in US–Iran negotiations, and the trajectory of the US dollar and bond yields, all of which are expected to influence foreign flows and overall risk appetite.

Domestically, Industrial Production (IIP) data for April 2026, scheduled for release on 28 May, will be closely tracked for insights into manufacturing activity and broader economic momentum after recent signs of moderation.

Market participants will also monitor government budget data and the fiscal deficit position for FY26, scheduled for release on 29 May, which will provide clarity on the government’s fiscal trajectory.

Foreign exchange reserves data will remain another key monitorable amid continued pressure on the rupee and expectations of RBI intervention.

Technical Outlook

Nifty

The Nifty continues to trade with a corrective bias and a downward shift in its trading range, reflecting indecisiveness amid mixed domestic and global cues.

Immediate support is placed around the 23,150–23,250 zone, followed by the 22,900 mark. On the upside, the 23,800–24,000 zone remains a key hurdle, and a decisive breakout above this band could trigger fresh momentum toward the 24,500–24,650 zone.

Bank Nifty

The banking index remained relatively resilient after filling the gap around the 52,700 level. A move above the 20-DEMA, placed near 54,400, could trigger a rebound toward 55,100, followed by a major hurdle around 56,300.

Support remains intact at 52,700, and a breach below this level may derail the relative outperformance and exert fresh pressure on the index.

Broader Markets

Market breadth remained mixed during the week. Midcap stocks continued to display relative resilience, indicating selective institutional and domestic participation. However, the largely flat performance in smallcaps suggests that risk appetite has moderated following the recent sharp rally in broader markets.

The divergence across sectors and market segments reflects increasing selectivity among investors, with participants focusing more on earnings visibility, balance-sheet strength, and sectors benefiting from currency depreciation and defensive demand trends.

Strategy Ahead

Given the prevailing backdrop of geopolitical uncertainty, currency volatility, elevated crude oil prices, and uncertain foreign flows, investors should maintain a cautious and selective approach.

Traders should avoid aggressive leverage and continue to follow disciplined risk management practices. With volatility expected to remain elevated, a hedged and stock-specific approach will remain critical in the near term.

We continue to prefer sectors such as energy, pharma, and metals, and recommend using market dips to accumulate quality names selectively. In addition, themes linked to capital markets and defense continues to appear promising.

At the same time, caution is warranted in the IT sector following the recent recovery bounce, and participants may consider utilising further strength to reduce trading positions.

Ajit Mishra – SVP, Research, Religare Broking Ltd.