Despite the ongoing geopolitical uncertainties, the immediate focus has reverted to fundamental factors—diminishing inflation, supportive signals from the Federal Reserve, and favorable conditions in specific sectors.
Following a significant recovery on Monday, the markets are set to commence Tuesday on a stable note as investors assess a favorable combination of domestic macroeconomic data, declining commodity prices, and indications from global central banks. Although geopolitical uncertainties remain, the immediate focus has reverted to fundamental factors—diminishing inflation, supportive signals from the Federal Reserve, and selective advantages in certain sectors.
On Monday, key indices recorded substantial increases, with the Nifty50 advancing by 0.92% to finish at 24,947 and the Sensex rising by over 600 points to reach 81,796. This rebound occurred after two consecutive sessions of declines, bolstered by a recovery in U.S. equity futures and stabilizing oil prices. Broader market segments also saw gains, with the Nifty Midcap100 and Smallcap100 both increasing by nearly 1%. The Nifty continues to operate within a wide range of 24,400 to 25,200.
As the U.S. Federal Reserve commences its two-day policy meeting, global markets are remaining stable, with no anticipated changes in interest rates. The Fed funds rate has been steady since December at 4.25%-4.50%, and officials continue to project two cuts of 25 basis points each in 2025. Nevertheless, concerns regarding inflationary pressures from new tariffs have kept policymakers cautious up to this point. Currently, with a decline in retail demand and commodity prices, market participants are estimating a 57.1% likelihood that the first rate cut will occur in September, as reported by CME’s FedWatch.
In the domestic arena, the May Wholesale Price Index (WPI) has dropped significantly to 0.39%, marking the lowest level in over a year, aided by deflation in fuel and power sectors and a decrease in primary goods prices. With Consumer Price Index (CPI) inflation comfortably within the Reserve Bank of India’s (RBI) target range and an optimistic outlook for food prices due to healthy reservoir levels and reduced duties on edible oils, the macroeconomic environment remains favorable for a 50-basis-point reduction in the repo rate.
Conversely, commodity markets are experiencing volatility due to ongoing geopolitical tensions. Brent crude oil prices briefly dipped below $74 before recovering, even as Israel targeted Iranian oil and gas facilities. Although prices have increased by 16% since the end of May, the intraday weakness observed on Monday has led Indian oil marketing companies to rally, fueled by expectations of lower input costs.
Although the monsoon season commenced early, it has since decelerated, resulting in a cumulative rainfall deficit of 31%. However, it is still early in the season, and market participants remain optimistic about a resurgence in activity in the upcoming weeks.
Analysts indicate that sectors associated with rural demand—such as agrochemicals, fertilizers, and rural fast-moving consumer goods (FMCG)—are still on the radar of investors, especially as easing inflation and enhanced liquidity conditions create a favorable environment for consumption recovery in rural areas. While headline indices may continue to stabilize in the short term, the underlying sentiment will hinge on improving macroeconomic indicators, dovish policy expectations, and foreign capital inflows.
