Equity Indices Fall; Bonds Strengthen Before RBI Policy Call

HIGHLIGHTS

• Adani Group stocks slide on reports of US probe into Iranian LPG trade
• YES Bank shares tank after ₹20.22 billion block deal; PE firm likely seller
• Fertiliser stocks surge up to 15% on optimistic domestic weather forecasts
• Ola Electric fell around 7% on Hyundai Motor likely sold stake via a block deal
• Waaree Renewable gain up to 5% on bagging solar project worth ₹3.46 billion

Indian equity markets ended sharply lower on Tuesday, as major benchmarks came under pressure from weakness in financials and mixed global signals. The Nifty 50 closed below 24,500, with profit-booking in heavyweight stocks dragging down overall sentiment despite early strength in select pockets.

Banking and life insurance stocks were among the biggest drags. Nifty Bank, which touched a new high of 56,161 in early trade, reversed sharply to end 303 points lower at 55,600 as selling emerged in key lenders. Life insurance stocks declined 1–3% ahead of monthly business data, reflecting caution in the sector. Broader pressure was visible, with nearly 45 Nifty stocks ending in the red, some shedding up to 2%.

Sectoral Performance
Sectorally, banks, capital goods, consumer durables, IT, oil & gas, and power all saw declines of 0.5–1%. Crude-sensitive stocks such as oil marketing companies, tyre makers, and paint firms weakened as global crude prices ticked up.

YES Bank tumbled 10%, while ANI Technologies (Ola’s parent firm) fell 8% following block deal-related pressure. On the other hand, realty stocks bucked the trend, with the Nifty Realty index gaining 1% on optimism around a potential rate cut by the Reserve Bank of India. Fertilizer shares rallied amid hopes that an early monsoon will support farm activity, while shipyard companies Cochin Shipyard and Garden Reach Shipbuilders surged over 6% each.

Despite select gains in realty and rural-focused segments, broader market sentiment remained cautious ahead of the central bank’s policy review later this week.

Top Gainers	% Change	Top Losers	% Change
NIFTY REALTY	1.20%	NIFTY PRIVATE BANK	-1.17%
NIFTY MEDIA	0.54%	NIFTY OIL & GAS	-0.77%
		NIFTY FINANCIAL SERVICES	-0.73%
		NIFTY CONSUMER DURABLES	-0.71%
		NIFTY IT	-0.67%

Indian government bond yields declined on Tuesday, as investor positioning intensified ahead of the Reserve Bank of India's upcoming policy review. Traders focused their activity on the 10-year segment, with the yield on the benchmark 10-year gilts easing to 6.2022%, down from 6.2144% in the previous session.

The market is widely pricing in a 25-basis-point rate cut by the RBI on Friday—its third consecutive reduction—as the central bank aims to support economic growth amid benign inflation. So far in 2025, the RBI has already delivered 50 basis points of easing and injected $100 billion in systemic liquidity between December and May, reinforcing a dovish policy stance.

Expectations of further easing are also supported by moderating inflation. Retail inflation in April fell to 3.16%, and is expected to remain below the RBI’s medium-term target of 4% for much of the year. Analysts believe this could prompt the central bank to revise its inflation projections lower in the upcoming policy statement.

The State Bank of India has called for a more aggressive 50-basis-point rate cut, citing the need to accelerate the credit cycle and ensure continued momentum in economic recovery. Such expectations have buoyed demand for government securities across the curve, particularly in the medium to long-term tenors. 

Tenure	Today	Previous
10-year Gilt	6.20%	6.21%
5-year gilt	5.85%	5.86%
5-year OIS	5.64%	5.66%

The Indian rupee ended marginally weaker on Tuesday, but the broader sentiment continues to lean toward a gradual appreciation amid persistent weakness in the US dollar and easing external headwinds. The rupee closed at 85.59 per dollar, slightly down from 85.3825 in the previous session, influenced by mixed regional cues and a mild recovery in the dollar index.

Despite the day’s decline, expectations remain firm for the rupee to strengthen towards the 85 level over the near term, as dollar demand moderates and foreign inflows stay supportive. The dollar index edged higher, recouping some of Monday’s losses, but remains under pressure overall due to concerns surrounding US economic growth and fiscal sustainability. Recent data showed US manufacturing contracted in May, reinforcing the narrative of a softening economy.

Domestically, policymakers have downplayed concerns over the US administration’s move to double tariffs on steel and aluminium imports. India’s Steel Minister said the impact on Indian exports would be minor, offering reassurance to currency markets.

Looking ahead, market participants will be closely watching two key events: the Reserve Bank of India’s monetary policy announcement on Friday, and the US non-farm payrolls report. Both are expected to influence the near-term trajectory of the rupee. 

Unit	Today	Previous
Dollar/Rupee	85.59	85.38
Dollar Index	98.92	98.78
1-year Dollar/rupee premium (%)	1.93%	1.98%

OUTLOOK
Equity benchmarks may open mixed, tracking global cues and investor positioning ahead of key economic releases. Realty and fertilizer counters may continue to see strength, supported by rate cut hopes and monsoon optimism. However, sectors sensitive to crude, such as oil marketing, tyres, and paints, could remain under pressure if global oil prices stay elevated. 

Indian government bonds are expected to extend gains, especially in the 10-year segment, ahead of the RBI’s policy announcement. With inflation well below 4% and economic growth firming up, the central bank is widely anticipated to deliver a third consecutive 25-bps rate cut. Traders may also price in a downward revision to the inflation forecast and potential liquidity-supportive steps. These factors should keep yields soft, with the 10-year expected to hover near the 6.20% mark.

The Indian rupee may trade rangebound with a strengthening bias, supported by dollar softness and foreign inflows. While some volatility may persist due to global uncertainty and US data releases, the overall tone for the rupee remains constructive. Traders will closely watch the RBI’s tone on currency and capital flows for further direction.

Key Events & Data Due Wednesday:

Economic Data

• Australia Jan-Mar GDP data
• India May S&P Global Services PMI
• US May ADP Non-farm employment data
• US May S&P Global Composite PMI
• US May ISM Non-Manufacturing PMI
• US Crude Oil Inventories data

Corporate Actions

• Earnings: Allied Digital Services, Arcotech, Ashapura Intimates Fashion, and Hardwyn India
• Deepak Builders & Engineers India to consider dividend

Policy Events

• US FOMC Member Bostic Speaks
• Bank of Canada interest rate decision