Indian equity markets ended May on a bruising note, with the BSE Sensex tumbling 1,092.06 points (or 1.44 per cent) to close at 74,775.74 on Friday, its third consecutive session of losses. The NSE Nifty 50 fell 359.40 points (or 1.50 per cent) to settle at 23,547.75. At its worst, the Sensex dropped as much as 1,278.69 points intraday to 74,589.11 before recovering slightly. For the month, the Nifty and Sensex have now logged losses of 1.9 per cent and 2.8 per cent, respectively.
Market watchers state that three reasons drove the month-end selling. First, the India Meteorological Department on Friday forecast that the June–September southwest monsoon rainfall will be just 90 per cent of the long-period average, i.e., below normal.
Most parts of the country, barring the Northeast, are expected to receive below-normal rainfall. For an economy where farm output, food prices, and rural demand are closely tied to the monsoon, this is not a small worry. Some analysts also flagged heightened fears of food inflation and the possible onset of an El Niño weather pattern.
Second, early optimism had emerged around a possible extension of the US-Iran ceasefire, but it has not been formalised. US and Iranian negotiators tentatively agreed on May 28 to extend the truce by 60 days and begin a fresh round of nuclear talks. The absence of formal confirmation kept foreign investors cautious heading into the weekend. Brent crude, which has surged 27.3 per cent since the Iran war began, fell 1.52 per cent on Friday to $92.29 per barrel, offering partial relief to the world's third-largest crude importer.
Third, losses were amplified in the final half hour of trade as MSCI's May index rebalancing came into effect. India's weight in the MSCI Emerging Markets index is expected to fall to 11.2 per cent following this rejig, down from a peak of around 20 per cent in July 2024, according to IIFL Capital.
The rejig triggering forced selling by passive funds tracking the index.
Among Sensex stocks, Power Grid, IndiGo, NTPC, Mahindra & Mahindra, Tata Steel, and Bajaj Finance were the major laggards, while Tech Mahindra, HCL Tech, Larsen & Toubro, and Infosys bucked the trend and closed higher.
On a monthly basis, Adani Enterprises surged 22 per cent after US federal fraud charges against Gautam Adani were dropped, while Reliance Industries shed 7.7 per cent and ONGC fell 11.4 per cent.
Foreign institutional investors (FIIs) had offloaded equities worth ₹1,042.70 crore on a net basis on Wednesday, and Friday’s net outflow is expected to be higher.
The one silver lining has been the rupee, which closed provisionally at 95.05 against the dollar on Friday, up 53 paise from its previous close of 95.58. Ceasefire extension news, softer crude prices, and a weaker dollar helped the Indian currency, which touched an intraday high of 94.97 during the session. The dollar index was trading at 99.13, up 0.11 per cent, while Brent crude was quoted at $92.01 per barrel in futures trade. Attention is now turning to the RBI Monetary Policy Committee meeting scheduled for June 3–5, with markets split on whether the central bank will opt for a rate adjustment or hold steady.
