Equities Snap Six-Day Rally; Bond Yields Ease On Inflation Relief

HIGHLIGHTS

• India's retail inflation cools to 2.82% in May, lowest since Feb 2019
• BSE shares decline 8% in two days after being placed under ASM framework
• Shakti Pumps shares gain 4% after ₹1.14 billion order from Maharashtra Government
• Sterlite Technologies shares jump 15% on ₹26.31 billion contract from BSNL
• Reliance Industries says sold Asian Paints stake in block deal

Indian equity markets witnessed a sharp decline on June 12, with benchmark indices erasing all of the previous session's gains and ending a six-day winning streak. The Nifty 50 closed below the 24,900 mark, reflecting broad-based selling across sectors and investor caution.

Midcap and smallcap indices bore the brunt of the selloff, with the BSE Midcap falling 1.5% and the Smallcap index down 1.3%, underperforming the frontline benchmarks. 

Top laggards on the Nifty included Tata Motors, Shriram Finance, Trent, Titan Company, And Coal India. On the upside, gains were seen in Apollo Hospitals, Dr Reddy’s Labs, Bajaj Finserv, Asian Paints, And Tech Mahindra, offering limited cushion to the broader market decline.

Sectoral Performance
All sectoral indices ended in the red, with auto, consumer durables, FMCG, metals, IT, power, oil & gas, and realty sectors falling between 1% and 2%.

Stock-specific action added to market volatility. PAYTM shares plunged 7% after the Finance Ministry clarified that it had no plans to impose a Merchant Discount Rate (MDR) on UPI transactions. 

On the positive side, Sterlite Technologies jumped 9% after announcing a ₹2,631 crore project with BSNL, and Kellton Tech gained 5% ahead of a June 19 board meeting to consider fundraising. Zee Entertainment added 1.5% ahead of its June 16 board meeting.

Top Gainers	% Change	Top Losers	% Change
NIFTY REALTY	-2.02%	NIFTY HEALTHCARE INDEX	0.05%
NIFTY CONSUMER DURABLES	-1.92%
NIFTY OIL & GAS	-1.69%
NIFTY AUTO	-1.65%
NIFTY METAL	-1.55%

Indian government bonds recovered on Thursday, ending a four-day losing streak, as value buying emerged following a sharp rise in yields. The yield on the benchmark 10-year bond eased to 6.2798%, down from the previous close of 6.3069%—its highest level since May 9. Over the past four sessions, the 10-year yield had climbed 11 basis points, prompting some investor repositioning.

The recent rise in yields was triggered by the Reserve Bank of India's unexpected policy shift to a neutral stance during its June monetary policy meeting. Despite a larger-than-expected 50 basis point rate cut, the central bank’s signal of limited further easing dampened sentiment in the bond market.

Traders now expect the RBI to hold rates steady for the rest of the fiscal year. A Reuters poll of economists supports this view, projecting a pause in further monetary action unless economic conditions shift significantly.

Meanwhile, India’s retail inflation eased to 2.82% in May, down from 3.16% in April and below the 3% mark forecasted in a Reuters poll. The moderation in inflation provides some comfort to bond investors, although the RBI has revised its full-year inflation projection to 3.7%, down from an earlier estimate of 4%.

Tenure	Today	Previous
10-year Gilt	6.28%	6.31%
5-year gilt	5.97%	6.00%
5-year OIS	5.73%	5.76%

The Indian rupee fell by 9 paise to close at 85.60 against the US dollar on Thursday, pressured by a sharp decline in domestic equity markets and elevated crude oil prices. The local currency opened at 85.43 at the interbank foreign exchange and traded in a narrow band of 85.43 to 85.65 during the session.

Corporate dollar demand weighed further on the rupee, reflecting routine end-of-quarter flows and import-related buying. However, losses were partially limited by broad-based weakness in the US dollar against major global currencies, offering some support to the rupee.

The Indian rupee has underperformed most of its regional peers in 2025, largely due to the country’s persistent external investment deficit. The gap between foreign investment inflows and outward capital movement has exerted steady downward pressure on the currency, keeping it rangebound in recent months.

Global risk sentiment remained fragile due to ongoing uncertainty around the US-China trade agreement and heightened geopolitical tensions in the Middle East. A day after crude prices jumped over 4% following Iran’s threat to target US military bases if nuclear negotiations collapse, oil benchmarks eased slightly. Still, the elevated energy prices remain a concern for India, a major crude importer.

Unit	Today	Previous
Dollar/Rupee	85.60	85.51
Dollar Index	98.03	99.02
1-year Dollar/rupee premium (%)	1.87%	1.82%

OUTLOOK
Equities are likely to witness heightened volatility in the near term following the sharp selloff on Thursday. Broader markets, particularly midcaps and smallcaps, may continue to underperform due to stretched valuations and profit booking. Sectoral rotation is expected, with defensives like pharmaceuticals and select IT stocks potentially drawing interest, while cyclicals such as auto, metal, and consumer durables may remain under pressure. 

Indian government bond yields are expected to remain rangebound, as investors assess the RBI's neutral policy stance and easing inflation. The benchmark 10-year yield may trade with a slight upward bias if external uncertainties persist or if the rupee weakens further. However, softening retail inflation and expectations of no near-term rate hikes will continue to provide a floor to bond prices. Market participants will closely track crude oil trends and global central bank signals to gauge the next direction.

The Indian rupee is likely to stay under mild pressure, especially amid global crude volatility, corporate dollar demand, and subdued equity sentiment. While weakness in the US dollar globally may offer some cushioning, India's external investment gap and geopolitical tensions could cap any sharp rupee appreciation. The currency is expected to trade in a narrow range, with 85.40–85.70 levels acting as the immediate band.

Key Events & Data Due Friday:

Economic Data

• Japan April Industrial Production data
• India May trade data
• Eurozone April Industrial Production data
• Eurozone April trade data
• India weekly FX reserve data
• US Baker Hughes Oil Rig Count

Corporate Actions

• Earnings: Libas Consumer Products, State Trading Corp of India

Policy Events

• ECB's Elderson speaks