Equities Rise on Bank Earnings; Rupee Weakens to One-Month Low on Dollar Demand

HIGHLIGHTS

• SEBI proposes second fund in a category to balance growth with investor interest 
• Tata Capital in process of filing updated IPO documents for listing by September
• IndiaMART sees collection growth stabilising at 10-12%
• L&T to establish India's largest Green Hydrogen plant
• Titan expands to GCC with majority stake in Damas Jewellery

Indian equities ended Monday’s session at the day’s high, driven by strong gains in banking stocks following upbeat quarterly earnings. The Nifty 50 closed higher, with the financial sector leading the charge, even as broader sentiment remained selective.

Banking and financial stocks were the top performers, with the Nifty Bank index rising 1.19% or 670 points to 56,953. HDFC Bank and ICICI Bank saw robust buying interest after both lenders reported better-than-expected Q1 results, lifting investor sentiment in the sector. IndusInd Bank, however, slipped in trade, weighed down by continued speculation around the tenure of its CEO, despite an intraday recovery.

The broader Nifty Midcap 100 added 0.6%, or 364 points, to end at 59,468. Market breadth, however, stayed neutral with the advance-decline ratio at 1:1, suggesting selective participation beyond index heavyweights.

Sectoral Performance
Metal stocks also contributed to the rally, supported by rising global commodity prices. State-run companies NALCO and NMDC led the gains in the sector.

On the flip side, index heavyweight Reliance Industries dragged down gains, falling over 3% despite steady Q1 earnings. It was the top Nifty loser for the session, capping further upside for the benchmarks.

Among other laggards, Ceat Ltd. tumbled nearly 6% after global brokerage Nomura downgraded the stock post-earnings.

Top Gainers	% Change	Top Losers	% Change
NIFTY FINANCIAL SERVICES	1.62%	NIFTY OIL & GAS	-1.09%
NIFTY PRIVATE BANK	1.26%	NIFTY PSU BANK	-0.62%
NIFTY BANK	1.19%	NIFTY FMCG	-0.50%
NIFTY METAL	1.03%	NIFTY IT	-0.30%
NIFTY AUTO	0.67%	NIFTY PHARMA	-0.27%

Indian government bond yields declined on Monday, with longer-tenor bonds seeing a deeper drop, as growing expectations of another interest rate cut by the Reserve Bank of India lifted market sentiment. The benchmark 10-year gilts yield eased to 6.2996%, down from 6.3058% on Friday, while the 15-year 6.68% 2040 bond yield slipped to 6.6105% from 6.6211%.

The softening in yields followed the release of June retail inflation data, which showed a sharp drop to 2.10%—the lowest reading in over six years. This unexpected disinflation has rekindled hopes that the RBI could ease rates again in the upcoming monetary policy meeting on August 6.

Last month, the central bank surprised the market by cutting the repo rate by 50 basis points and shifting its policy stance from ‘accommodative’ to ‘neutral’. While that change had signalled a possible pause in the easing cycle, the latest inflation numbers have shifted expectations once again.

However, some caution remains among market participants. Some economists noted that with inflation likely to firm up in the January-March quarter and in the next fiscal year, the RBI may face constraints in delivering further rate cuts beyond the near term.

Tenure	Today	Previous
10-year Gilt	6.30%	6.31%
5-year gilt	5.96%	5.97%
5-year OIS	5.68%	5.71%

The Indian rupee weakened on Monday, marking its lowest close in nearly a month, as steady dollar demand from foreign and local private banks weighed on the currency. It settled at 86.2925 against the US dollar, slipping 0.1% from the previous session and touching an intraday low of 86.35 — a level last seen on June 23.

The pressure on the rupee was compounded by modest declines in other Asian currencies, which reflected regional caution amid global trade uncertainties. The US dollar index, however, remained largely flat, with market participants closely watching progress in trade negotiations ahead of the August 1 deadline for potential agreements with Washington.

While there was no sharp movement in global dollar strength, demand from banks — likely on behalf of importers and custodial clients — continued to exert downward pressure on the rupee. The currency’s weakness came despite recent signs of foreign portfolio inflows into Indian equities, indicating that dollar buying on the commercial side outpaced passive inflow-related support.

Meanwhile, activity in the forwards market pointed to slightly increased hedging interest. The arbitrage between offshore non-deliverable forwards and onshore dollar-rupee rates remained narrow but sufficient to lift forward premiums. The one-month forward premium rose to 12.25 paisa, its highest level in three weeks, suggesting mild expectations of future rupee softness or interest rate divergence.

Unit	Today	Previous
Dollar/Rupee	86.29	86.15
Dollar Index	98.25	98.40
1-year Dollar/rupee premium (%)	2.00%	1.98%

OUTLOOK
Indian equity markets will likely witness cautious optimism in the coming sessions, with stock-specific action dominating ahead of a heavy earnings calendar. Positive surprises from key private banks such as HDFC Bank and ICICI Bank will continue to support sentiment in financials. However, volatility may persist in large-caps like Reliance Industries, especially if further institutional selling emerges post-earnings. Midcap and metal stocks are expected to remain resilient, bolstered by firm global commodity cues. 

In the bond market, yields are expected to soften slightly, supported by cooling inflation and growing market conviction that the Reserve Bank of India may deliver one more rate cut. The 10-year benchmark yield could hover near the 6.29% mark in the short term. However, investors will stay focused on the upcoming monetary policy in August and the cutoffs in the upcoming debt auctions. If the central bank signals room for further accommodation amid sustained disinflation, demand for long-tenor papers may rise.

The Indian rupee is likely to remain under pressure in the near term, trading around the 86.30 per dollar level, weighed by persistent dollar strength and importer demand. However, continued foreign inflows into equity and debt markets may cushion the downside. 

Key Events & Data Due Tuesday:

Corporate Actions

• Earnings: Aurionpro Solutions, Colgate Palmolive (India), Creditaccess Grameen, Cyient, Dalmia Bharat, Indian Railway Finance Corporation, Jana Small Finance Bank, JSW Infrastructure, Kajaria Ceramics, KEI Industries, Mahanagar Gas, Mahindra & Mahindra Financial Services, One 97 Communications, SML Isuzu, and Zee Entertainment Enterprises 
• Denta Water and Infra Solutions to consider dividend

Policy Events

• RBA Meeting Minutes
• BoE Gov Bailey Speaks
• Fed Chair Powell Speaks
• FOMC Member Bowman Speaks
• ECB President Lagarde Speaks