Equities Rise, Bond Yields Dip Ahead Of RBI Policy; Midcaps Outperform

HIGHLIGHTS

• JLR sales decline 24% to 4,643 units in May, Jaguar sales nil
• Railtel Corporation shares gain 4% on bagging ₹2.74 billion order
• BEL bags ₹23.23 billion worth orders from Mazagon Dock, Garden Reach Shipbuilders
• Hindustan Zinc shares surge 6% as silver hits fresh all-time high of Rs ₹1.04 lakh per kg
• India VIX eases nearly 5% amid hopes of RBI rate cut

Indian equity benchmarks closed higher on Thursday in a muted yet positive session, supported by firm investor sentiment and strength in select sectors like defence, real estate, and capital goods. Both large-cap and broader market indices posted comparable gains, reflecting broad-based buying.

Market confidence was further reinforced by upbeat brokerage commentary and declining market volatility. The India VIX fell over 3% intraday to settle near 15.27, after hitting a low of 14.98. This marked a cumulative 12% drop over three sessions, indicating easing concerns ahead of the Reserve Bank of India’s upcoming policy review.

Sectoral Performance
Sectoral performance remained largely supportive of the rally. While PSU Bank, media, and auto indices closed marginally lower, other major sectors ended in the green. Notably, Nifty IT, metal, pharma, and realty indices gained between 0.5% and 1.7%.

Defence-related stocks were among the day’s top movers. A media report suggesting that NATO may increase member-nation defence spending targets to 5% of GDP sparked interest across defence counters. Bharat Electronics Ltd rose 1% after announcing fresh orders worth ₹23 billion, reinforcing optimism in the sector.

Top Gainers	% Change	Top Losers	% Change
NIFTY REALTY	1.75%	NIFTY PSU BANK	-0.58%
NIFTY PHARMA	1.28%	NIFTY MEDIA	-0.23%
NIFTY HEALTHCARE INDEX	1.07%	NIFTY AUTO	-0.11%
NIFTY METAL	0.59%	NIFTY PRIVATE BANK	-0.10%
NIFTY FINANCIAL SERVICES	0.47%

Indian government bond yields edged lower on Thursday, as traders positioned themselves ahead of the Reserve Bank of India’s monetary policy decision due on Friday. The yield on the benchmark 10-year gilts settled at 6.1960%, slightly down from 6.2065% in the previous session.

Markets widely expect the central bank to deliver a third consecutive rate cut of 25 basis points, citing subdued inflation and the need to stimulate economic momentum. With inflation consistently below the RBI's medium-term target, there is room to maintain an accommodative stance.

So far in 2025, the RBI has reduced policy rates by a cumulative 50 basis points and injected around ₹8.50 trillion into the banking system between December and May to support liquidity. These measures have helped anchor yields and enhance transmission to the broader economy.

While the consensus points to a 25-bps cut, the State Bank of India has advocated for a steeper 50-bps reduction to reinvigorate the credit cycle. The call reflects concerns over sluggish private investment and the need for more aggressive policy support.

Bond market participants are also anticipating potential liquidity-enhancing steps from the RBI, which could benefit short-tenor bonds and sustain demand in the coming weeks. Traders remain optimistic that supportive monetary conditions will persist, keeping yields in check despite upbeat macroeconomic data.

Tenure	Today	Previous
10-year Gilt	6.20%	6.21%
5-year gilt	5.85%	5.86%
5-year OIS	5.60%	5.64%

The Indian rupee ended modestly higher on Thursday, supported by mild dollar inflows and strength across most Asian currencies, as market participants awaited the RBI’s monetary policy decision due on Friday.

The domestic currency settled at 85.79 per US dollar, recovering slightly from the previous close of 85.90. In early trade, the rupee moved in a narrow range, but gained momentum in the latter half of the session, aided by dollar sales from foreign banks, likely acting on behalf of custodial clients.

Regional support also played a role, with most Asian currencies posting gains during the session. Meanwhile, the dollar index remained largely unchanged around 98.80, as traders assessed mixed signals from US data and policy remarks.

US President Donald Trump once again urged the Federal Reserve to lower interest rates, following weaker-than-expected private payroll numbers. His comments added to broader pressure on the greenback and provided some relief to emerging market currencies, including the rupee.

Unit	Today	Previous
Dollar/Rupee	85.79	85.90
Dollar Index	98.83	99.21
1-year Dollar/rupee premium (%)	1.92%	1.90%

OUTLOOK
Indian equities are expected to maintain a firm bias, supported by easing volatility and sustained interest in defence, capital goods, and realty stocks. Investor sentiment will likely improve further if the Reserve Bank of India delivers a widely anticipated 25 basis-point rate cut in its upcoming policy meeting. 

Government bond yields may ease further after a marginal decline on Thursday. Traders will await the RBI’s policy outcome, where a third consecutive rate cut and possible liquidity support measures are likely. If the central bank reduces the inflation forecast or signals accommodative policy continuity, the 10-year benchmark yield may test lower levels. Shorter-duration bonds could benefit more from additional liquidity actions.

The rupee is likely to trade with a slight appreciation bias, especially if the RBI’s policy message boosts market confidence and global risk sentiment remains stable. While geopolitical uncertainties and crude prices remain potential headwinds, steady dollar inflows and support from regional currencies could anchor the rupee near the 85.70–85.90 band.

Key Events & Data Due Friday:

Economic Data

• UK May Halifax house price index
• Eurozone Jan-Mar GDP data
• US May non-farm payroll data

Corporate Actions

• BEML board to consider dividend
• Ethos board to consider fund raising
• Housing & Urban Development Corp board to consider fund raising 
• Ratnaveer Precision Engineering board to consider fund raising

Policy Events

• RBI MPC meeting outcome
• ECB President Lagarde speaks