In markets, there are days on which all the things that could upset sentiment, do. Friday, 29th May was one of those days for India. The BSE Sensex tumbled 1,44 points or 1.44 per cent to end at 74775.74. The broader Nifty50 gave up 359 points, settling at 23,547.75. It was the third consecutive losing session for Indian benchmarks and their losses over the last three days are around 2.2 per cent for Sensex and Nifty, respectively. This was a hard week to end, for a market that had been searching for something to cheer about in the world of de-escalation.

The first and possibly the most home-sourced jibe was from the India Meteorological Department. The IMD has cut down on its forecast on the delay in southwest monsoon, from 92 percent of the long period average to 90 percent, and the term “El Niño” was immediately mentioned in the market comments. In a nation where the monsoon is much more than just a climatic event, this revision instantly translates into agricultural production forecasts, rural demand projections, food inflation forecasting and, ultimately, into the calculus of the Reserve Bank of India. In a nutshell, KC Securities' Mahesh M. Ojha said: The monsoon outlook is not promising the Met office has come out with 50-60 percent chances of below normal rainfall. That's no number that markets can ignore. If the kharif output is under any real danger, it triggers a chain reaction, from stocks of fertilisers to tractor sales and rural consumption expenditure, with India's farm sector directly supporting the livelihoods of about half the population. It was all being re-priced Friday.

“The market was broadly bearish after the IMD's monsoon forecast was revised down to 90% of the long-period average, causing concerns among investors, with the potential of deficient rainfall and rising probability of El Niño weather pattern anticipated in the upcoming months increasing investors' concerns of high food inflation.

Vinod Nair, Head of Research at Geojit Investments, said that it is obvious that the Union Budget will be held in July.

The geo-political backdrop provided additional fog. According to several sources that quoted American officials, the U.S. and Iran have a tentative 60-day memorandum of understanding to extend the ceasefire and restart a new nuclear negotiation. The agreement still needs to be formally signed by President Trump. Yet, despite apparent progress toward a framework by diplomats, the guns have been heard. Iranian forces on Thursday night fired ballistic missiles at Kuwait and attack drones into and around the Strait of Hormuz, the same waterway that was shut down by Iran since late February, the biggest supply shock to global energy markets this year. The US Central Command has now confirmed that the missiles were intercepted. That, after all, is the paradox that is haunting crude oil traders and equity desks: ceasefire in principle, fire in practice.

Brent crude was trading at about $93.44 per barrel in early Friday trade, which is about 19 percent lower from 2026 highs but is still significantly higher than the approximately $70 per barrel it commanded prior to the outbreak of hostilities. Crude loadings within the Gulf are still very low as UBS analysts commented this week. Iran has reduced its crude exports to below 0.3 million b/d in May from 1.5 million b/d in April and 1.7 million b/d in March. In the Strait of Hormuz, some 20% of the world's oil passes through on any given day, and there has been no return to normal trade. Perhaps the market is taking an optimistic stance, but the actual supply situation has not been addressed. The difference between a headline diplomatically saying the oil is there and the actual barrel of oil getting to a refinery is where the risk of trading lies.

The MSCI effect — cold arithmetics at 3:30 PM

While traders were still digesting the downgrade of the monsoon and the uncertainty about the Gulf, a third was quietly brewing the MSCI index rebalancing that went on at the close of Friday. While the index rebalancing is a routine scheduled event, it is not always an emotionally neutral affair, since it entails large passive funds selling the stocks they need to remove, and buying the stocks to add at the same time, causing sharp intraday dislocation. This time addition of four stocks took place to MSCI Global Standard Index, which included Federal Bank, Multi Commodity Exchange (MCX), National Aluminium Company (NALCO) and Indian Bank. At the same time, the names of Hyundai Motor India, Jubilant FoodWorks, Kalyan Jewellers and Rail Vikas Nigam were removed. However, selling pressure from the exclusions and also the risk-off sentiment took a toll and losses accelerated in the last 30 minutes of trading. The transaction was mechanical but painful, observers on the floor said the type of late day sink that mar the end-of-day portfolio remarks and belies the actual fundamentals.

The Nifty PSE Index, an indicator of public sector enterprises, was the worst-hit among all sectoral indexes as it dropped 2.37 percent. S. stocks for oil and natural gas and for metals fell nearly 2 percent, while auto shares lost almost 2 percent. The sole positive surprise was the IT sector, which was able to post a 0.6 percent gain, partly due to the resurgence of Wipro after the company announced a collaboration with Service Now on agentic AI workflows, which helped its shares rise by 18.5 percent on its US-listed platform. Infosys and TCS each posted gains of nearly 2 and 1.9 percent, respectively. But the tech industry was a narrow exception in a dismal market: 364 of the Nifty 500 universe closed in negative.

The rupee, RBI and the inflation corridor

The underlying economic tensions were brought into focus by Friday's selloff, though, in the underlying index numbers. Foreign institutional investors (FIIs) have been net sellers so far, with a net disinvestment of about ₹1,040 crore during the previous session, and a generally negative stance during much of the month of May. The rupee is in step with these outflows. In a period of high crude oil prices, the combination of a weaker currency poses a particularly uneasy arithmetic for India's import bill and, in turn, fuel prices, the current account and headline inflation.

Now, RBI's next monetary policy call is in the spotlight. The central bank is facing a corridor that has been closed on several fronts. A below normal monsoon adds upside risks to food prices, while high oil prices continue to drive the imported inflation higher. Add to this the various rate dynamics around the world the ECB is likely to increase rates at its June 11 meeting with euro-zone inflation data this week. The Indian markets had been mounting a case for rate cuts earlier this year, but that case appears far less strong these days. Vinod Nair's note Friday was spot-on regarding the near-term situation: “Any improvement in the situation will have to wait for a breakthrough in the diplomacy in West Asia that allows shipping in the critical Hormuz to resume in a meaningful way, which would take oil prices down in a sustained way.” Otherwise, it would be a difficult balancing act for the domestic macro environment in the upcoming kharif assessment period from July-September.

Sensex and Nifty closed down 2.23% and 2.01% respectively in the three sessions as selling pressure picked up in the last half-hour of the trading day due to the effect of the latest MSCI index rebalancing.

Business Standard Markets Desk, 29th May 2026

A global context (one way or another)

Friday should not only be interpreted as an Indian story. The Asian markets as a whole started the day on the positive side with the Nikkei 225 and the South Korean Kospi climber by more than 2 percent on the same ceasefire news that failed to support Indian sentiment later. European bourses started slightly higher with the Euro Stoxx 50 climbing 0.5 percent, while the Paris CAC posted a 0.6 percent increase. The S&P 500 and Dow Jones futures were flat. The result, a divergence: global markets cautious, Indian markets closed with a big red complexion, is an indication of how special the Indian economy is. While for the export-oriented Asian economies the relief for the supply chain is direct if there is a truce between Iran and the US, India's risk is through a more complicated chain as oil prices → rupee depreciation → inflation → monetary policy tightening or loosening → credit growth → consumption. There are more joints in that chain along which things can go wrong.

Not to mention, the domestic volatility gauge, India VIX, rose 6 percent on Friday to end at 15.91. After a fairly quiet spring, the markets are scared again, as indicated by options pricing. Prediction markets run by websites that follow the odds of a nuclear deal between the United States and Iran indicate that the probability of a nuclear deal by November is about 55 percent, meaning that in relative terms, the global energy markets are still stuck in a state of uncertainty rather than a solution. It is a tough market for the market that was pricing in normalisation.

Where to look next

Going ahead, the week will have two major domestic data releases which will provide a more tangible picture of India's economic path RBI monetary policy meeting and GDP data print. The last will be the market's first official look at whether the previous fiscal year's momentum has continued into FY27's first quarter. The market may test the 23,800 Nifty level more seriously than the Friday's closing price suggests, if the GDP number is not up to the expectations and RBI hints that rate cuts are out of the way because of inflation concern. The Nifty is seeing immediate technical resistance at 24,200 levels. The 23,800 level is the line in the sand, said Globe Capital Market's Vipin Kumar in his commentary pre-market, and a break below it will pave the way for 23,600 and further down.

The larger market had a somewhat different, and perhaps more truthful story to tell. The Nifty Midcap 150 in fact rose 0.3 percent on Friday to end higher for the second straight week. Smallcap 250 index of the Nifty was up over 1 percent. As benchmarks buckled, domestic investors (also with longer time horizons and a better understanding of company-specific stories) continued to pick up selective opportunities. The large-cap stress and mid-and-small-cap resilience is not uncommon at certain times when foreign institutional investors are disinvesting from the index, which has a heavyweight bias. The three are a significant weightage in the Nifty and can pull the index down when conditions are not good in the broader market, thereby confusing the headline figures.

In terms of cumulative losses to the benchmarks, Friday was also by some estimates the worst May the Indian markets have seen in years. While it is a powerful emotional framing, it is also a certain statistical embellishment: the fact that for now, we have one bad month, but does it imply a bear market? The structural argument of Indian equities over the medium term does not seem to be diminished by one bad month. None of the above consumption driven domestic growth story, the capex cycle of infrastructure and the technology sector's growing footprint globally have been negated by the monsoon revision and the geopolitical flare-up. What Friday did do, however, was make it abundantly clear that the short-term trajectory of Indian markets is straight through the events that no fund manager on Dalal Street can control whether the 60-day ceasefire with Iran is signed by Donald Trump and whether it will hold, and whether the monsoon eventually breaks the revised forecast as the season progresses. Three storms will be the tone of the Street until those questions get answered.