Equities End Higher, Bonds Gain on Soft Oil; Rupee Rises with Weak Dollar

HIGHLIGHTS

• Tata Motors domestic sales fall 12% in June, Commercial Vehicles struggle too
• Gabriel India shares in 20% upper circuit on group reorganisation plans
• Bajaj Auto misses estimates, domestic business declines 13%
• Hero Motors refiles papers for IPO, ups issue size
• Mahindra & Mahindra vehicle sales up 14% in June supported by strong SUV sales

Indian equities ended marginally higher on Tuesday after a rangebound session, as gains in select index heavyweights and banking stocks helped offset weakness in broader markets. The Nifty 50 and Sensex held on to green territory, though momentum remained muted.

However, midcap shares underperformed, with the Nifty Midcap index snapping a seven-session winning streak on account of profit booking. This divergence between large-cap resilience and broader market consolidation signals caution among investors.

Sectoral Performance
Public sector banks led the gains, with the Nifty PSU Bank index rising 0.7%, marking its sixth consecutive session of gains. Karur Vysya Bank rose more than 2% after posting a strong business update for the June quarter, adding to optimism in the banking sector.

Among other sectoral performers, the Consumer Durables index advanced 0.4%, while FMCG, media, and power indices declined between 0.4% and 1.3%, reflecting cautious sentiment ahead of earnings season.

In auto, the reaction to monthly sales updates was mixed. Mahindra & Mahindra and Eicher Motors ended higher, while Tata Motors dipped slightly, indicating a selective approach by investors toward the sector.

Reliance Industries rose nearly 2% to a nine-month high following an upgrade from a global brokerage, which cited improved earnings prospects across the company’s businesses, including energy, retail, and telecom. The stock’s performance supported overall index gains.

Top Gainers	% Change	Top Losers	% Change
NIFTY PSU BANK	0.71%	NIFTY MEDIA	-1.31%
NIFTY OIL & GAS	0.49%	NIFTY FMCG	-0.69%
NIFTY METAL	0.31%	NIFTY IT	-0.30%
NIFTY BANK	0.26%	NIFTY REALTY	-0.24%
NIFTY HEALTHCARE INDEX	0.21%	NIFTY AUTO	-0.20%

Indian government bond yields eased on Tuesday, mirroring gains in US Treasuries and supported by softer crude oil prices and elevated surplus liquidity in the banking system. The yield on the benchmark 10-year bond closed at 6.2927%, down from 6.3241% in the previous session.

The decline in yields followed a drop in the 10-year US Treasury yield to 4.1929%, its lowest in two months. Softer global rates offered a favourable backdrop for Indian debt, with additional tailwinds from declining oil prices. Brent crude futures were last quoted at $67.27 per barrel, down nearly $11 from the peak recorded in June.

India’s financial system remains flush with liquidity. The daily average surplus rose to ₹2.74 trillion in June—its highest level in three years. Traders are closely monitoring the Reserve Bank of India's next steps, especially after last week's variable rate reverse repo auction drained ₹850 billion from the system. As a result, the weighted average call rate rose to 5.50% on Monday, aligning with the policy repo rate for the first time this fiscal. The Tri-party Repo rate also climbed to 5.42%, signalling tightness in the overnight money market.

Despite the auction-led outflow, traders expect liquidity to remain adequate in the near term, offering a supportive environment for bonds. Foreign portfolio investors have returned to the market in the second half of June, absorbing earlier outflows. Short- to medium-tenor bonds may benefit if these inflows sustain and crude oil remains under pressure.

Tenure	Today	Previous
10-year Gilt	6.30%	6.32%
5-year gilt	5.97%	6.00%
5-year OIS	5.67%	5.71%

The Indian rupee strengthened on Tuesday, tracking gains in most Asian currencies, as the US dollar remained under pressure amid growing concerns over President Donald Trump's fiscal strategy and doubts surrounding trade negotiations. The rupee settled at 85.52 per US dollar, appreciating by 0.3% during the session.

Despite the intraday strength, the rupee struggled to sustain gains beyond the 85.50 mark, with traders citing consistent dollar demand from a major state-run bank and select private banks. The domestic unit is expected to remain rangebound unless it decisively breaks past the 85.45–85.50 resistance zone or breaches 86 on the downside.

The broader Asian currency complex also firmed up, with gains ranging between 0.1% and 0.4%. The dollar index declined 0.3% to 96.37—its lowest level since February 2022—and has now lost 11% year-to-date.

Dollar weakness continues to be driven by rising scepticism over US fiscal management and uncertainty about the independence of the Federal Reserve, especially amid speculation that the Trump administration may influence future Fed appointments.

Investor expectations of quicker rate cuts by the Fed are gaining momentum, further weighing on the greenback. Market attention will now shift to upcoming US economic data and Fed Chair Jerome Powell's remarks, both of which could shape expectations around the policy outlook.

Unit	Today	Previous
Dollar/Rupee	85.52	85.76
Dollar Index	96.47	97.22
1-year Dollar/rupee premium (%)	1.98%	1.99%

OUTLOOK
Indian equities are expected to remain rangebound, with large-cap stocks providing stability. Financials and energy stocks will likely continue supporting benchmarks, aided by improving earnings visibility. PSU banks may remain in favour following strong quarterly business updates, while mid- and small-cap stocks could see selective profit-booking after recent rallies. Sectoral rotation may persist, with auto and consumer durables gaining traction on improving domestic demand trends. However, weak cues from global markets and any escalation in geopolitical tensions could weigh on investor sentiment.

Indian government bonds may see stable demand amid subdued crude oil prices and firm liquidity conditions. The 10-year benchmark yield is expected to hover in the 6.25–6.35% range in the coming days. Traders will closely track the Reserve Bank of India’s stance on liquidity management after the recent variable rate reverse repo auction and rising call rates. Continued foreign investor interest could lend further support, especially if US Treasury yields remain soft. Auction results and RBI’s weekly liquidity operations will remain key near-term triggers.

The rupee is likely to trade with a strengthening bias as the dollar stays under pressure due to concerns over US fiscal policy and Fed independence. However, strong importer demand around the 85.50 mark may limit sharp appreciation. The pair is expected to consolidate in the 85.45–85.90 range. Upcoming US macroeconomic data and Federal Reserve Chair Powell’s testimony will be crucial in setting the near-term tone for dollar-rupee movements. Any surprises on the global front may lead to short-term volatility in the currency.

Key Events & Data Due Wednesday:
Economic Data

• US May Unemployment Rate
• US June ADP Non-farm Employment Data
• US Crude Oil Inventories

Corporate Actions

• Asian Hotels (West) to consider financial results
• Kilitch Drugs (India) to consider fund raising
• MIRC Electronics to consider fund raising
• RattanIndia Enterprises to consider fund raising
• PNB Housing Finance to consider fund raising
• Pavna Industries to consider stock split

Policy Events

• ECB President Lagarde Speaks  
• ECB's De Guindos Speaks  
• ECB's Lane Speaks