Rupee Recovers, Equities Struggle Amid Geopolitical Jitters

HIGHLIGHTS

• Dr Reddy's Labs March quarter net profit rises 22% to ₹15.94 billion, beats estimate
• SMBC to acquire 20% stake in YES Bank from SBI, others 
• MCX, BSE, Angel One shares tumble up to 6% as rising India-Pak tensions spook investors
• Defence stocks, drone manufacturers surge up to 14% as India-Pakistan crisis escalates

Indian equity benchmarks extended their losses for a second straight session on May 9, weighed down by rising geopolitical tensions between India and Pakistan. Despite broadly positive global cues, domestic markets remained under pressure as the conflict escalated, prompting risk aversion among investors.

The session began with a sharp gap-down opening, with the Nifty breaching the 24,000 mark in early trade. Selling persisted throughout the day, and the index closed near the session's low. The BSE Sensex and Nifty both ended the week with losses of over 1% each, reflecting persistent nervousness. While the BSE Midcap index managed to end flat, the Smallcap index declined 0.3%, indicating selective pressure across broader markets. 

Sectoral Performance
Sectoral performance remained mixed. The realty index led the laggards, falling 2.3%, followed by private banks which dropped 1.3%. In contrast, some defensive and cyclical pockets showed resilience—media, consumer durables, capital goods, and PSU banks posted gains in the range of 0.9% to 1.6%.

Titan Company and Larsen & Toubro surged around 4% each, buoyed by strong March quarter earnings. Defence-related stocks witnessed renewed buying interest amid geopolitical concerns—Paras Defence, Hindustan Aeronautics, Bharat Electronics, and Zen Technologies gained between 2% and 8%.

Top Gainers	% Change	Top Losers	% Change
NIFTY PSU BANK	1.59%	NIFTY REALTY	-2.38%
NIFTY CONSUMER DURABLES	0.95%	NIFTY FINANCIAL SERVICES	-1.84%
NIFTY MEDIA	0.92%	NIFTY FINANCIAL SERVICES 25/50	-1.76%
		NIFTY BANK	-1.42%
		NIFTY OIL & GAS	-0.78%

Yields on Indian government bonds edged higher this week, snapping a seven-week streak of declines as renewed geopolitical tensions between India and Pakistan unsettled the debt market. The benchmark 10-year yield rose 3 basis points over the week, reflecting investor caution and a pullback in risk appetite.

The escalation in cross-border conflict caught bond traders off guard, triggering widespread selling across the curve. Foreign banks led the exit, dumping a record volume of Indian sovereign debt on Thursday. Primary dealers also offloaded significant holdings, marking their highest weekly sales since September 2024.

The spike in selling pressure pushed the 10-year benchmark yield to an intra-week high of 6.44%, its sharpest climb in over a month. 

However, the bond market found some relief late in the session after the Reserve Bank of India set lower-than-expected cut-off yields at open market purchase, which helped ease selling pressure. 

The benchmark 10-year gilts yield eased from its peak to close the week at 6.3750%, down from the previous day’s close of 6.3976%. 

Tenure	Today	Previous
10-year Gilt	6.38%	6.40%
5-year gilt	6.08%	6.13%
5-year OIS	5.66%	5.68%

The Indian rupee strengthened against the US dollar on Friday, recovering from early session losses despite persistent geopolitical tensions between India and Pakistan. The domestic currency closed at 85.38 per dollar, marking a 33-paise gain from Thursday’s close of 85.71, snapping a three-day losing streak.

The rupee’s rebound came after a sharp fall earlier this week that saw the currency post its worst single-day loss since February 2023. Heightened military activity along the India-Pakistan border had rattled markets, triggering concerns of further volatility in the foreign exchange space.

However, the rupee found support following reports that the Reserve Bank of India is prepared to deploy its ample foreign exchange reserves to counter excessive volatility and ensure currency stability. According to Bloomberg, the central bank doesn’t anticipate extreme swings in the rupee, and remains confident in its capacity to intervene when necessary.

Unit	Today	Previous
Dollar/Rupee	85.37	85.71
Dollar Index	100.26	100.45
1-year Dollar/rupee premium (%)	2.31%	2.14%

OUTLOOK
Equity markets will likely remain under pressure Monday, especially in high-beta sectors such as real estate, private banks, and autos. Defensive sectors like IT, FMCG, and defence-related stocks may attract safe-haven buying, particularly if geopolitical risk persists. Broader markets could witness increased divergence, with midcaps and smallcaps facing selective selling. The India VIX, having already spiked, may remain elevated, signalling persistent nervousness.

Money and forex markets will be closed on Monday on account of Budhha Purnima Holiday. 

The benchmark 10-year government bond yield may trend higher, having recently breached the 6.40% mark.  Any escalation will likely dampen demand for longer-duration debt and reduce the appeal of Indian gilts among global investors. The Indian rupee is expected to stay rangebound but vulnerable. The RBI is likely to intervene to prevent sharp swings, but the rupee may still face pressure if the dollar strengthens or if geopolitical concerns deepen. 

Key Events & Data Due Monday:

Economic Data

• Japan March current account data 

Corporate Actions

• Jan-Mar Earnings: Andhra Cements, Ather Energy, Bajaj Electricals, Bliss GVS Pharma, Carborundum Universal, DCW, Happiest Minds Technologies, Jai Balaji Industries, JM Financial, Jyothy Labs, Kewal Kiran Clothing, KRN Heat Exchanger and Refrigeration, Man Industries (India), Morepen Laboratories, PG Electroplast, Prudent Corporate Advisory Services, PVR INOX, Raymond Lifestyle, Raymond, RBZ Jewellers, Sagar Cements, Siyaram Silk Mills, Speciality Restaurants, SRF, Tata Steel, TD Power Systems, The Ugar Sugar Works, Thomas Cook  (India) , Tips Films, UPL, Usha Martin, Venky's (India), Zaggle Prepaid Ocean Services,   

Policy Events

• Eurogroup meetings
• BoE MPC member Mann speaks