Equities Slide, Bond Yields Rise, Rupee Nears 87 on Geopolitical Tensions

HIGHLIGHTS

• Siemens Energy India debuts 14% higher than discovered price
• KPI Green Energy arm bags new orders for 36.87 MW solar power plant
• ITD Cementation wins ₹9.60 billion orders for projects in Kerala and West Bengal
• Waaree Energies plans to double US capacity, says 'largely insulated' from Trump bill
• Marksans Pharma arm gets UK drug regulator nod for overactive bladder treatment drug

Indian equities ended lower on Thursday, with sentiment dragged down by a sharp selloff in mid- and small-cap stocks, even as the headline indices posted relatively moderate losses. Broad-based profit-booking and weak market breadth overshadowed gains in select auto names.

The Nifty Midcap 100 index tumbled 2%, or 949 points, to close at 57,152, reflecting deep underperformance in the broader market. The Nifty Bank index also fell 251 points, settling at 55,577, with weakness in both private and PSU lenders. The advance-decline ratio stood at a stark 1:5, with nearly 90% of the Nifty Midcap 100 constituents closing in the red, indicating widespread selling pressure.

Sectoral Performance
All indices ended lower except for the auto pack, which bucked the trend. Eicher Motors and Mahindra & Mahindra were among the top gainers, helping the auto sector hold ground amid the broader downturn. The outperformance came on continued optimism around festive demand and rural recovery.

In the IT space, Tech Mahindra slipped 2%, while Wipro advanced 2% following a positive brokerage note, leading to a mixed performance within the sector. Adani Ports remained under pressure, extending its losing streak to a seventh consecutive session, with a 3% decline amid sustained investor caution.

Top Gainers	% Change	Top Losers	% Change
NIFTY AUTO	0.52%	NIFTY PSU BANK	-2.04%
		NIFTY MEDIA	-1.91%
		NIFTY REALTY	-1.60%
		NIFTY METAL	-1.29%
		NIFTY IT	-0.94%

Indian government bond yields surged on Thursday, driven by a sharp rise in global crude oil prices and heightened geopolitical tensions, as traders also trimmed positions ahead of a key debt auction scheduled for Friday. The benchmark 10-year bond yield jumped to 6.3095%, up from 6.2615% in the previous session, while the five-year 6.75% 2029 bond yield climbed to 6.0236% from 5.9434%.

The upward move in yields reflected rising concerns over inflation risks, with Brent crude hovering near $77 per barrel after gaining over 10% in the past five sessions. Escalating tensions in the West Asia, particularly between Iran and Israel, have sparked fears of supply disruptions, posing a threat to India's inflation outlook given its heavy reliance on imported oil.

Traders also stayed cautious ahead of the government’s ₹270 billion bond auction on Friday, which includes ₹150 billion of the liquid five-year bond. The yield on this paper has risen nearly 18 basis points in the past two weeks, as markets price in supply pressure and reassess rate cut expectations.

While the Reserve Bank of India recently surprised markets with a 50-basis-point policy rate cut and lowered its inflation forecast to 3.7% for the year, the shift to a "neutral" policy stance has tempered hopes of further easing. Investors now await the release of the RBI’s Monetary Policy Committee meeting minutes on Friday evening for guidance on the future rate path.

Tenure	Today	Previous
10-year Gilt	6.31%	6.26%
5-year gilt	6.02%	5.94%
5-year OIS	5.75%	5.68%

The Indian rupee weakened further on Thursday, closing at 86.7225 against the US dollar, its lowest level since mid-March, amid intensifying geopolitical tensions and a broader flight from risk assets. The local currency fell 0.3% on the day after briefly touching an intraday low of 86.8925, breaching a key support level of 86.70.

Concerns over a potential escalation in the Israel-Iran conflict, especially following fresh missile exchanges and uncertainty around possible U.S. involvement, rattled investor sentiment. Brent crude rose near $77 per barrel after Israeli airstrikes reportedly hit Iranian nuclear sites, while Iranian missiles struck an Israeli hospital. Rising oil prices continue to weigh on the rupee, as crude is a major component of India’s import bill. A $10 per barrel rise in crude can widen India’s current account deficit by up to 0.4% of GDP, according to economists.

Despite sporadic dollar sales by state-run banks, believed to be on behalf of the Reserve Bank of India, the rupee failed to sustain any meaningful recovery. Unlike its aggressive interventions earlier in March, the RBI appeared less forceful this time, intervening closer to 86.90 but not defending the rupee aggressively.

Dollar demand from foreign portfolio investors and oil companies remained strong, while exporters reportedly held back their dollar sales in anticipation of further rupee weakness. With the 86.70 level now broken, the rupee is expected to drift toward the 87.00 mark. Traders anticipate continued depreciation bias unless geopolitical tensions ease or oil prices stabilize meaningfully.

Unit	Today	Previous
Dollar/Rupee	86.72	86.48
Dollar Index	98.94	98.65
1-year Dollar/rupee premium (%)	1.88%	1.84%

OUTLOOK
Equity markets may continue to face pressure, particularly in mid- and small-cap segments, following the recent sharp selloff. Broader market sentiment is likely to stay weak, with defensive sectors such as auto and select IT stocks potentially offering some support. Investors are expected to remain selective, focusing on large caps and companies with strong fundamentals, as geopolitical overhang and profit-booking weigh on market participation.

Government bond yields are expected to remain elevated, with the 10-year benchmark likely trading around 6.30% levels. The rise in crude prices will continue to pose inflationary risks, limiting the chances of further rate cuts by the Reserve Bank of India. Traders will also assess the outcome of the government’s latest bond auction and the RBI’s Monetary Policy Committee meeting minutes, due Friday evening, for cues on future rate direction.

The rupee is likely to trade with a weakening bias and may test the 87.00 level against the US dollar if geopolitical tensions persist. Elevated oil prices and continued foreign fund outflows will add pressure on the currency. While RBI intervention may limit sharp declines, speculative bets and exporter caution could keep volatility high in the coming sessions.

Key Events & Data Due Friday:

Economic Data

• Japan May National CPI data
• UK May Core Retail Sales data
• German May PPI data
• US Philadelphia Fed June Manufacturing Index
• US Baker Hughes Oil Rig Count

Corporate Actions

• Manba Finance to consider fund raising
• Moksh Ornaments to consider fund raising

Policy Events

• RBI MPC Meeting Minutes  
• PBoC Loan Prime Rate (Jun)
• BoJ Monetary Policy Meeting Minutes  
• ECB Economic Bulletin