Indian Markets: A Week That
Went Nowhere,
For Good Reason
+0.32% on the week
inside cautious zone
as of week close
Zoom out and the picture is starker: the Sensex is down 4.25% over the past month and down 7.13% year-on-year. Motilal Oswal noted the Sensex was marginally down on a weekly VWAP basis, trading near the 75,300 level that has acted as a centre of gravity. The weekly RSI on Nifty stood at 41.83 — well inside the cautious zone, reflecting weakening momentum and an absence of either strong buying conviction or panic selling.
The FII/DII dynamic tells the underlying story. FIIs sold ₹1,891 crore on May 21, while DIIs countered with ₹2,492 crore in buying. Month-to-date through May 20, FIIs have net-sold ₹25,896 crore from Indian equities. DIIs have absorbed all of it and more, buying ₹48,369 crore in the same period. The domestic institutional wall — built on SIP inflows, insurance money, and pension funds — is the singular reason this market hasn't corrected 10–12% in a world where crude is above $100 and the Fed is contemplating rate hikes. It is holding the floor. It is not providing the fuel for a breakout.
The index level of ~23,700 reflects a market that believes a US-Iran deal eventually happens, Rubio's India visit produces something real on trade, and the RBI doesn't hike. Remove any one of those assumptions and you're looking at 22,500. Add in all three with conviction and 25,000–25,500 is back on the table. The range reflects genuine uncertainty, not laziness.
OpenAI, Anthropic, and Indian IT
The preceding week's damage — which the current week's consolidation was trying to digest — had a very specific cause. On May 12, OpenAI announced a new $4 billion enterprise deployment company, backed by TPG, Brookfield, Bain, and Advent, specifically designed to help organisations build and deploy AI directly for everyday work — directly overlapping with services offered by India's IT industry. Indian IT stocks fell up to 4% the same day. TCS touched its 52-week low of ₹2,283 — down 28.63% year-to-date. Infosys fell to its lowest level since December 2020.
This wasn't isolated. Anthropic simultaneously launched a $1.5 billion joint venture with Blackstone, Hellman & Friedman, and Goldman Sachs to deploy its AI model directly inside corporations. Both AI companies are now actively delivering business outcomes, not just enabling them — a direct assault on the outsourcing model that built India's $283 billion IT industry.
The Core Fear: Value-Chain Displacement
AI-native ecosystems could capture the higher-margin strategic transformation work, pushing traditional outsourcing firms toward lower-margin execution roles. The IT industry carries significant weight in both Nifty 50 and Nifty IT indices, and Indian IT firms derive a substantial share of revenues from US and European enterprises.
TCS Is Down 36% Over the Past Year
This week, IT stocks bounced on relief buying at multi-year lows — which explains the partial positive on Nifty — but the structural question hasn't gone away. Infosys is trading at levels not seen since 2020. These are not valuation discounts waiting to be corrected; they represent a genuine market reassessment of the long-term earnings power of India's largest export industry.
IT is roughly 13–14% of the Nifty 50 by weight. Until TCS and Infosys stabilise and show — in actual reported numbers — that AI is additive rather than substitutive to their revenues, the index has a structural ceiling. That proof is four to six quarters away at minimum.
Crude, Iran, and the Strait
Brent crude ended the week around $104–105 per barrel — down from the ~$107 area of the prior week but still deeply elevated. The week's oil price movements tracked diplomatic signals almost tick-for-tick: both Brent and WTI fell roughly 5.6% mid-week after President Trump said US-Iran talks were “in the final stages,” before recovering as Iran's position on uranium storage complicated the outlook.
The supply shock context is not going away quickly. The conflict has removed approximately 14 million barrels per day from global markets — about 14% of global supply — including exports from Saudi Arabia, Iraq, the UAE, and Kuwait. ADNOC's CEO stated that full oil flows through the Strait of Hormuz will not return before Q1 or Q2 of 2027, even if a peace deal was reached immediately.
A complication emerged Friday: reports surfaced that Iran has been in discussions with Oman about establishing a fee-collection system for vessels transiting the Strait — even while peace talks continue. Iran also clarified it intends to keep its enriched uranium stockpile within the country, directly complicating the central US demand. Tehran appears to be exploring how to institutionalise economic leverage over the Strait rather than relinquish it.
Rapidan Energy Group warned this week that a prolonged Strait closure through August risks an economic downturn approaching the scale of the 2008 Great Recession. That is the tail risk. The central case is $90–110 crude through end-2026 — painful but manageable, as long as the rupee holds.
The Q4 earnings season delivered an on-the-ground confirmation of this pressure. Maruti Suzuki announced a price hike of up to ₹30,000 across its entire vehicle range from June 2026, explicitly citing persistent inflationary pressures and an adverse cost environment. When India's largest carmaker raises prices across every model simultaneously, it is telling you that input cost inflation has become too large to absorb internally.
A confirmed US-Iran peace deal that reopens the Strait and brings Brent back toward $75–80 is the single largest positive catalyst available to Indian equities right now — larger than any domestic policy move. It would compress India's import bill, stabilise the rupee, and give the RBI room to resume rate cuts. The Sensex could rally 2,500–3,500 points on such an outcome. The inverse puts a 7–10% Nifty correction firmly in play.
Rubio's India Visit: Starting Today
US Secretary of State Marco Rubio began a four-day visit to India today — covering Kolkata, Agra, Jaipur, and New Delhi — with discussions focused on energy security, trade, and defence cooperation. A Quad Foreign Ministers' meeting, bringing together the US, India, Japan, and Australia, is expected on May 26.
The trade dimension is the one with direct market consequences. US Ambassador Sergio Gor said the bilateral trade agreement would be finalised “in the coming weeks and months.” On February 2, 2026, Trump and Modi announced a deal reducing US reciprocal tariffs on Indian goods to 18%. What remains to be finalised is a comprehensive Bilateral Trade Agreement covering full tariff schedules, market access, and supply chain integration across pharma, gems and diamonds, textiles, machinery, and defence.
There is also a political subtext worth noting. Relations between Washington and New Delhi became complicated after Modi was seen as downplaying Trump's role in mediating the India-Pakistan conflict. Rubio's visit is partly a reset of that relationship dynamic.
BTA Timeline Announcement Pharma · Chemicals · Textiles
A timeline or framework announcement for concluding the full BTA would be immediately positive for pharma exporters, specialty chemicals, textile manufacturers, and defence companies.
Defence Procurement Deals or Letters of Intent HAL · BEL · Bharat Forge
Defence procurement deals or letters of intent would boost HAL, BEL, Bharat Forge, and Hindustan Aeronautics.
A Strong Quad Joint Statement
A strong Quad joint statement on Indo-Pacific security reinforces India's strategic premium in global investor eyes. If the visit produces only communiqués and photo opportunities, markets will treat it as a sell-the-news event.
Caught in a bind with no clean exit.
The RBI held its repo rate at 5.25% at its April 2026 meeting — the second consecutive pause — maintaining a neutral stance as the Iran conflict threatened GDP growth while simultaneously fuelling inflationary pressures. The central bank projected FY27 GDP growth at 6.9% and FY27 inflation at 4.6%, with the trajectory highest in Q3 FY27 at 5.2%.
The central bank is now caught in a genuine bind that has no clean exit. Through 2025, it cut rates by a cumulative 125 basis points as inflation collapsed and growth needed support. That tailwind has reversed. Indian bond markets moved on reports this week that the RBI is considering interest rate hikes to support the rupee. A Bank of America report this week projected that foreign selling in Indian equities is likely to extend into 2027.
The RBI hiking into an oil shock, a slowing global economy, and a structurally impaired IT sector would be painful. But allowing the rupee to slide past 97–98 to the dollar while inflation climbs toward 5% creates its own problems — imported inflation, capital outflows, and balance sheet stress for corporates with dollar debt.
Hold at 5.25%
RBI holds at 5.25% through at least Q2 FY27 [July–September 2026].
Cut 25bp in August
Iran deal closes, crude normalises, RBI cuts 25bp in August.
Hike in Q3
Fed hikes, rupee under pressure, RBI forced to hike 25bp in Q3. Real-estate, NBFCs, and rate-sensitive consumption plays most exposed.
Kevin Warsh Takes the Fed
The most consequential global development for emerging markets this week received almost no attention in Indian financial media. The US Senate confirmed Kevin Warsh as the 17th Chair of the Federal Reserve on May 13 in a 54–45 vote — the most divisive confirmation in Fed history. His term officially began when Jerome Powell's expired on May 15.
Warsh arrives in an almost impossibly difficult position. Powell, in his final press conference on April 29, said the centre of the Fed's rate-setting committee was moving toward “a more neutral place.” Traders expect the Fed to hold steady for the rest of 2026, though the probability of a rate hike has risen to 20% for October and 30% for December.
Market veteran Ed Yardeni — who coined the term “bond vigilantes” — warned this week that Warsh may have to push for higher rates to establish credibility. Current market pricing implies a 42% chance of a US rate increase by year-end.
This is the most underappreciated risk to Indian equities in the second half of 2026. When the Fed was cutting rates through 2025, the dollar weakened and emerging markets were natural beneficiaries. A Fed that holds, or worse hikes, strengthens the dollar, pushes US Treasury yields higher, and makes dollar assets comparatively more attractive versus Indian equities. Bank of America's projection of sustained FII selling into 2027 is directly downstream of this scenario.
Why It's Bad News for Indian IT
On May 21, Nvidia reported record quarterly profit of $58.3 billion for Q1 FY2027, revenue of $81.6 billion — up 85% year-on-year — and data centre revenue of $75.2 billion, up 92% year-on-year. The company announced $80 billion in buybacks, a 25x dividend increase, and guided Q2 revenue to $91 billion.
Despite this, Nvidia's stock closed down 1.8% on Thursday. The quarter was called “a garden variety beat” — well telegraphed, and the third consecutive earnings report to see the stock fall post-results.
The AI Infrastructure Boom Is Real and Broadening
Nvidia's numbers confirm the AI infrastructure boom is real, accelerating, and broadening beyond the hyperscalers to enterprise and sovereign deployments. The share of revenue from enterprises and sovereign AI deployments is now roughly equal to hyperscaler spending.
The Wider It Gets, the Worse It Is for Legacy IT
That same boom is precisely what funds the OpenAI Deployment Company and the Anthropic enterprise JV that are threatening the Indian IT services model. The wider the demand base gets, the more enterprises have direct access to AI capabilities without routing through traditional IT service providers.
For Indian investors, the implication is sector-specific and sharp. AI infrastructure beneficiaries — power infrastructure plays, data centre real estate and power equipment — benefit from this trend. Legacy IT services firms face the opposite pressure. The Nvidia result validates the AI wave while simultaneously confirming why TCS and Infosys are structural underperformers in a world reshaped by that same wave.
The Domestic Economy's Actual State
The earnings season delivered a clear picture of an Indian economy that is fundamentally sound but being squeezed from multiple directions simultaneously.
LIC: +23.2% Net Profit Jump
LIC reported a 23.2% jump in net profit to ₹23,420 crore for Q4FY26, with net premium income growing 11.6% to ₹1.65 trillion. The board declared a ₹10 per share final dividend and a 1:1 bonus issue with record date May 29. Insurance premium growth at 11.6% confirms that India's financial savings culture is deepening — structurally positive and partially explains why DII flows remain strong.
ITC: Steady but Not Accelerating
ITC reported a 4.9% rise in net profit to ₹5,113 crore for Q4FY26, with revenue down 7% year-on-year to ₹16,050 crore. The cigarette segment grew well; the broader FMCG business was muted. A reasonable proxy for urban consumption: steady but not accelerating.
Maruti: Price Hike of Up to ₹30,000 Across Every Model
Maruti Suzuki announced a price hike of up to ₹30,000 across its entire vehicle portfolio from June 2026, citing persistent inflationary pressures. India's largest carmaker with a 40%+ market share raising prices across every model is direct transmission of the oil and commodity shock into the consumer economy. It will feed into CPI and slow the consumption recovery the government and RBI have been counting on.
The Indus Waters Tribunal
India reiterated in March 2026 that the Indus Waters Treaty will remain in abeyance until Pakistan takes credible and irreversible steps to end support for terrorism. The legal dimension escalated this week: the Permanent Court of Arbitration issued an award on May 15, 2026, reportedly affirming Pakistan's position on the treaty. India rejected the award, maintaining that the court is illegally constituted.
India is simultaneously rejecting a multilateral arbitration outcome, defying the World Bank (the treaty's original guarantor), and using water as a geopolitical lever — all at once. It hasn't moved markets yet. It could become a medium-term headwind for multilateral financing and sovereign credit assessments if it escalates further.
What Comes Next
Line up all the live variables and you get a market trapped between powerful positives and powerful negatives, with neither side in control.
What's Working
GDP growth at 6.9% for FY27 is still among the highest in the world. Inflation, while rising, is not yet out of control. The domestic savings pipeline through SIPs and insurance is providing a structural floor. The US-India strategic relationship is deepening. A trade deal is closer to completion than at any prior point. And oil could fall sharply if the Iran deal closes.
What's Not
IT — 13–14% of the Nifty — is in a structural bear market. FIIs have been net sellers all month and BofA sees that continuing into 2027. Crude above $100 is squeezing corporate margins and pressuring the RBI. The new Fed Chair may be forced to hike. The Strait of Hormuz normalisation could be pushed to 2027 even in a deal scenario.
The Immediate Catalysts to Watch
The Rubio Visit (May 23–26)
The first test. A concrete BTA timeline or defence procurement announcement would be immediately market-positive. A symbolic visit produces a sell-the-news reaction.
The Iran Diplomatic Trajectory
Any credible ceasefire announcement that includes Strait of Hormuz reopening commitments would trigger a sharp Nifty rally and give the RBI room to breathe. The Oman fee-system report from Friday suggests the path is more complicated than markets had assumed.
Warsh's First Public Communication as Fed Chair
His tone, language, and any guidance on the rate path will be closely parsed by EM investors globally.
Absent a resolution on Iran, the Nifty is likely to stay in the 23,200–24,200 band through June. A confirmed Iran deal breaks it to 25,000+. A deal failure and crude above $115 tests 22,500 and the March 2026 base. The current close of 23,719.30 sits almost exactly in the middle of that range — which is precisely where a market with this many unresolved variables should be.
Disclaimer:The views expressed in this briefing are the author's personal opinions only and should not be construed as investment advice. Nothing herein constitutes a recommendation to buy, sell, or hold any security or financial instrument. Readers should conduct their own research and consult a qualified financial adviser before making any investment decisions.