Markets End Lower as Financials Weaken; Rupee Weakens Ahead of US Data

HIGHLIGHTS

• Adani Ports handles 41.3 MMT cargo in June, volumes rise 11% in first quarter
• ICICI Prudential AMC may shortly file papers for up to ₹100 billion IPO
• NBCC bags ₹3.55 billion PMC order for zoo infrastructure project in Nagpur
• Reliance Communication loan account classified as 'fraud' by SBI
• Don't intend to make Vodafone Idea a PSU: Telecom Minister Scindia 

Indian equities ended lower on Monday, reversing recent gains as profit booking emerged in financials and broader sectors. The Nifty 50 slipped below the 25,500 level, weighed by selling in banking, midcap, and PSU stocks, snapping its recent upward momentum.

The Nifty PSU Bank index declined nearly 1%, ending a six-session rally. The Nifty Midcap 100 index fell 83 points to 59,667, breaking an eight-day winning streak. Broader market sentiment remained weak, reflected in an advance-decline ratio of 1:2, suggesting broad-based selling.

Sectoral Performance
Financials were the main drag on the index. RBL Bank tumbled over 4% after the company refuted media reports about a stake acquisition by New Development Bank. The broader financial pack also saw pressure despite strength in specific non-bank financial names.

In contrast, metal stocks outperformed. Tata Steel led the gainers on the Nifty, buoyed by firm demand expectations from China and improving global steel price outlook.

Tata Communications advanced nearly 5% after Macquarie initiated coverage with a “Buy” rating, citing strong prospects in digital infrastructure. Another standout performer was HDB Financial Services, which jumped nearly 14% on its trading debut. The HDFC Bank-owned NBFC saw strong investor interest, signalling continued optimism in selective financial services despite the broader weakness in banks.

With the market digesting recent gains, investors are likely to remain selective, favouring stocks with sector-specific tailwinds or robust earnings visibility. The near-term trend may hinge on global cues, institutional flows, and macroeconomic data.

Top Gainers	% Change	Top Losers	% Change
NIFTY METAL	1.41%	NIFTY REALTY	-1.44%
NIFTY CONSUMER DURABLES	1.04%	NIFTY FINANCIAL SERVICES	-0.97%
NIFTY HEALTHCARE INDEX	0.34%	NIFTY PSU BANK	-0.83%
NIFTY AUTO	0.32%	NIFTY BANK	-0.80%
NIFTY PHARMA	0.32%	NIFTY PRIVATE BANK	-0.65%

Indian government bonds edged higher on Wednesday, supported by sustained foreign inflows and a rising banking system liquidity surplus. The yield on the benchmark 10-year bond eased to 6.2892%, slightly lower than the previous close of 6.2927%. The yield on the five-year 6.75% 2029 bond also declined to 5.9522% from 5.9653%.

Investor sentiment improved as the Reserve Bank of India refrained from announcing any fresh liquidity absorption measures, offering relief to traders concerned about further tightening. This pause prompted renewed interest in government securities through the session.

Foreign portfolio investors continued to increase their exposure to Indian bonds, purchasing a net ₹104 billion over the past three sessions. Their sustained participation helped boost confidence and supported bond prices.

Meanwhile, the banking system liquidity surplus surged to ₹3.3 trillion as of July 1, further reinforcing expectations that the RBI may avoid aggressive liquidity tightening in the near term.

Market participants are now eyeing the maturity of a seven-day variable rate reverse repo (VRRR) auction on Friday. Attention will focus on whether the RBI rolls over the facility or allows liquidity to remain elevated. Interbank rates have started to soften, with the weighted average call money rate falling to 5.28%, while the TREPS rate slipped to 5.14%, both below the current repo rate.

Tenure	Today	Previous
10-year Gilt	6.29%	6.30%
5-year gilt	5.95%	5.97%
5-year OIS	5.67%	5.67%

The Indian rupee weakened on Wednesday, pressured by a stronger dollar and cautious sentiment ahead of key US economic data and trade deadline developments. The rupee closed at 85.7025 per US dollar, marking a 0.2% decline from the previous session.

The US dollar firmed ahead of Thursday’s non-farm payrolls report, with the dollar index rising nearly 0.3% to hover around the 97 level. Stronger-than-expected US economic data released on Tuesday provided some support to the greenback, keeping Asian currencies under pressure. The Malaysian ringgit led regional declines, falling 0.7%, while most others posted mild losses.

Market focus remains on the July 9 deadline for countries, including India, to finalise trade deals with the US. Although President Donald Trump reiterated that he does not plan to extend the deadline, he expressed optimism about a potential agreement with India. Traders, however, remain sceptical, citing past inconsistencies in policy stances.

Despite the global uncertainty, near-term implied volatility for the rupee stayed slightly below its three-month average, suggesting that markets are not currently pricing in significant swings. This reflects a wait-and-watch approach among investors, who may adjust positions based on upcoming data and trade signals.

The rupee’s near-term trajectory will likely be influenced by Thursday’s US labour data and any new developments in trade negotiations. A stronger-than-expected jobs print could push the dollar higher, potentially keeping the rupee under mild pressure.

However, any signs of flexibility in US trade deadlines may limit downside risks for the Indian currency.

Unit	Today	Previous
Dollar/Rupee	85.70	85.52
Dollar Index	97.03	96.47
1-year Dollar/rupee premium (%)	1.99%	1.98%

Equity benchmarks may face continued pressure after recent gains, with the Nifty 50 likely to remain volatile around the 25,500 mark. Weakness in financial stocks, which dragged indices lower today, could persist, especially if foreign fund flows turn tepid. Midcaps and PSU banks, which had seen sustained rallies, may witness further consolidation. However, select large-caps in metals and digital infrastructure may lend some support, particularly if global demand sentiment from China holds up.

Indian government bonds are expected to remain range-bound, with yields likely to track both local liquidity dynamics and US Treasury movements. The benchmark 10-year yield may hover around the 6.28% mark, supported by a strong liquidity surplus in the banking system and steady foreign inflows. However, traders will closely monitor the Reserve Bank of India's stance on liquidity absorption, especially after the upcoming maturity of the latest VRRR auction on Friday. 

The rupee is likely to trade with a mild weakening bias near the 85.70–86.00 range. Dollar demand from importers and global uncertainty around trade deal negotiations ahead of the July 9 deadline could keep the local unit under pressure. While recent dollar softness and US fiscal concerns may offer intermittent support, unless the rupee decisively breaks below 85.45, upside may remain capped. 

Key Events & Data Due Thursday:
Economic Data

• China June Caixin Services PMI
• India June S&P Global Services PMI
• Eurozone June Composite PMI
• US weekly Jobless Claims Data
• US May Trade Data
• US June Non-farm Payrolls Data
• US June S&P Global Composite PMI
• US May Factory Orders Data
• US June ISM Non-Manufacturing PMI
• US Baker Hughes Oil Rig Count

Corporate Actions

• Johnson Controls - Hitachi Air Conditioning India to consider dividend
• Surana Solar to consider financial results
• Balaji Telefilms to consider financial results
• Patel Engineering to consider fund raising
• P N Gadgil Jewellers to consider fund raising
• Prime Focus to consider fund raising

Policy Events

• German Buba Balz Speaks  
• FOMC Member Bostic Speaks  
• ECB's Lane Speaks