Market Summary

Markets witnessed a weak and volatile week, with benchmark indices extending their losing streak as a sharp surge in crude oil prices and renewed geopolitical tensions weighed heavily on investor sentiment. Banking stocks emerged as the biggest drag following mixed Q1 FY27 earnings, while a risk-off environment and weakness in the rupee further curtailed buying interest.

Although domestic macroeconomic indicators remained broadly resilient and the earnings season continued to offer stock-specific opportunities, elevated energy prices and global uncertainties overshadowed these positives. Consequently, the Sensex declined 2.68% to close at 76,059.77, while the Nifty fell 2.33% to settle at 23,767.45. Broader markets also came under pressure, with the Midcap and Smallcap indices declining 1.29% and 2.18%, respectively.

Key Market Drivers

Geopolitical developments remained the dominant driver of market sentiment throughout the week. The escalation in the US-Iran conflict, continued Houthi attacks in the Red Sea, and disruptions to crude shipments through the Strait of Hormuz intensified concerns over global energy supplies. Brent crude surged above the $100 per barrel mark, reigniting fears of higher imported inflation, pressure on India’s current account, and the possibility of tighter global monetary conditions.

Persistent foreign institutional investor (FII) selling further weighed on domestic equities, particularly financial stocks, as investors adopted a cautious stance amid rising bond yields and heightened geopolitical risks.

On the domestic front, macroeconomic data remained relatively encouraging. India’s foreign exchange reserves increased by $964 million to $675.16 billion, providing comfort on the external sector. Flash PMI data showed that private sector activity remained in expansion territory, although the Composite PMI moderated to 54.3—its weakest reading since March 2022—primarily due to softer services activity. Manufacturing, however, remained comparatively resilient despite a marginal moderation in the headline PMI.

The ongoing earnings season presented a mixed picture. Private sector banks came under significant pressure despite healthy profit growth, as concerns over margin compression and cautious management commentary weighed on valuations. HDFC Bank and Axis Bank emerged among the biggest laggards, dragging the Bank Nifty lower. In contrast, select companies across the auto, NBFC, FMCG, pharmaceutical, and industrial sectors delivered robust earnings, resulting in notable stock-specific outperformance.

Sectoral Snapshot

Sectoral performance remained largely negative, with realty, banking, and financial services witnessing the sharpest correction following mixed quarterly earnings and persistent FII selling. Weakness also persisted across select IT, energy, and pharmaceutical stocks.

In contrast, the auto sector outperformed after strong earnings from Bajaj Auto and TVS Motor. Select FMCG companies also attracted buying interest following better-than-expected quarterly performance. Despite the broader market correction, investors continued to reward companies delivering strong earnings growth and maintaining a positive business outlook.

Key Events to Watch

The coming week will be driven by a combination of major global policy events, domestic macroeconomic releases, and the ongoing earnings season.

Developments surrounding the US-Iran conflict, shipping activity through the Strait of Hormuz, and movements in crude oil prices will remain key drivers of global risk sentiment. In addition, investors will closely monitor the US Federal Reserve’s policy meeting, where interest rate guidance and commentary on inflation will be critical for global markets.

On the domestic front, market participants will track June Industrial Production (IIP) data, the government’s fiscal deficit figures, and the latest foreign exchange reserves for fresh insights into economic momentum and fiscal conditions. The ongoing Q1 FY27 earnings season and management commentary will continue to serve as the primary stock-specific catalysts.

Technical Outlook

Nifty

The Nifty slipped below the lower band of its month-long consolidation range of 23,800–24,400 and tested the support of the rising trendline around the 23,600 mark before settling at 23,767.45. The index is now trading below all its key moving averages—20, 100, and 200 DEMA—indicating that the near-term bias has turned negative.

A decisive breach below the 23,600 support zone could accelerate the correction towards the previous swing low of 23,100. On the upside, the 24,000–24,100 region is expected to act as the first resistance, followed by a stronger hurdle around the 24,400 mark.

Bank Nifty

Bank Nifty remained under significant pressure following disappointing earnings from key private sector banks. The index has slipped below its short-term moving averages, although its medium-term structure remains intact.

Immediate support is placed in the 55,800–56,000 zone, which coincides with the rising trendline support. On the upside, any recovery is likely to face resistance around the 57,400 level. A sustained move above this zone would be required to restore positive momentum and open the door for a move towards the 58,800 mark.

Market Breadth

Market breadth weakened noticeably during the week, with both the midcap and smallcap indices declining alongside the benchmark indices, registering losses in the range of 1.29%–2.18%. The correction was broad-based, reflecting reduced risk appetite amid geopolitical uncertainty and elevated crude oil prices.

Despite the broader weakness, earnings-driven stock-specific opportunities continued to emerge, suggesting that institutional investors remain selective rather than indiscriminately risk-averse.

Strategy Ahead

The market has entered a more challenging phase, with elevated crude oil prices, persistent geopolitical tensions, and continued FII selling likely to keep volatility elevated in the near term. While domestic macroeconomic fundamentals remain relatively resilient, global developments are expected to remain the primary drivers of market direction.

Participants should maintain a selective approach and focus on companies demonstrating strong earnings momentum, healthy balance sheets, and resilient business outlooks. Auto, select pharma, industrials, quality NBFCs, and earnings-driven opportunities appear relatively better positioned, while caution is warranted in sectors facing margin pressure from higher energy costs.

Given the uncertain global backdrop, disciplined risk management, prudent position sizing, and a stock-specific investment approach will remain critical until greater clarity emerges on geopolitical developments, crude oil prices, and the trajectory of global monetary policy.

Ajit Mishra – SVP, Research, Religare Broking Ltd.