Nifty Bank Hits Record High; Rupee Gains, Oil Steadies, Bonds Rally

HIGHLIGHTS
- Panasonic exits washing machine, refrigerator segments in India
- BPCL, IOC, HPCL shares extend rally as crude oil cools off; Brent crude under $70/bbl
- Bank of India board approves ₹200 billion fund raise via infra bonds
- Hitachi Energy India wins order for 765 kV transformers from Power Grid Corp
- Defence stocks rebound as NATO agrees to boost defence spending

Indian equities rallied sharply on Thursday, with benchmark indices hitting multi-month highs, buoyed by gains in heavyweight financial and energy stocks. The Nifty 50 climbed past the 25,500 mark for the first time since September amid strong buying in large-cap counters. The BSE Sensex also posted solid gains, tracking upbeat investor sentiment and firm global cues.

The rally was led by bellwether names like Reliance Industries and HDFC Bank, which together accounted for a major portion of the day’s upmove. The Nifty Bank index surged 586 points to end at life high of 57,207.22, underpinned by strength in HDFC Bank, ICICI Bank and other frontline lenders. Private bank and metal indices rose 1–2%, adding heft to the rally.

Sectoral Performance
Oil & gas stocks gained on the back of stable global crude prices and improving refining margins. IOC, BPCL and HPCL ended around 3% higher, while investor interest in MCX remained strong, pushing the stock to a fresh record high. It has risen nearly 9% this week.

However, broader market gains were more tempered. The Nifty Midcap 100 rose 346 points to 59,227, trailing the headline indices. Market breadth was neutral, with the advance-decline ratio at 1:1, indicating cautious optimism among investors.

On the flip side, Dr Reddy’s Lab fell after a brokerage downgraded the stock over margin concerns. Realty and media indices shed around 1%, with selective profit-booking in stocks like Prestige Estates and UPL, limiting broader participation in the rally.

Top Gainers	% Change	Top Losers	% Change
NIFTY METAL	2.31%	NIFTY MEDIA	-1.09%
NIFTY OIL & GAS	1.86%	NIFTY REALTY	-1.00%
NIFTY FINANCIAL SERVICES	1.48%	NIFTY IT	-0.13%
NIFTY CONSUMER DURABLES	0.87%
NIFTY FMCG	0.68%

Indian government bonds ended marginally higher on Thursday, as traders covered short positions ahead of a heavy debt auction and liquidity-absorbing measures by the Reserve Bank of India. The yield on the benchmark 10-year gilts eased to 6.2763%, down from 6.2873% the previous day, even as bond supply pressures loomed.

Short-covering activity was observed particularly in the new 10-year benchmark bond, which saw elevated short positions exceeding ₹100 billion. A supply squeeze in the Clearcorp Repo Order Matching System added to the demand for the benchmark, as limited availability prompted traders to square off positions before Friday's auction.

The bond market is preparing for a dual event on Friday—a ₹1 trillion variable rate reverse repo auction and a ₹360 billion government bond auction. The RBI's VRRR move is aimed at draining surplus liquidity from the banking system, which has remained well above comfort levels in recent weeks. However, traders remain cautious, as frequent liquidity absorption operations may disrupt the market and tighten short-term funding conditions.

Market participants are in a wait-and-watch mode, holding back aggressive bets until there’s more clarity on whether the VRRR is a one-off or part of a broader liquidity tightening strategy.

Tenure	Today	Previous
10-year Gilt	6.28%	6.29%
5-year gilt	6.03%	6.03%
5-year OIS	5.68%	5.69%

The Indian rupee appreciated sharply on Thursday, closing at a two-week high of 85.7050 per US dollar, up 0.4% from the previous close. The rally was driven by broad dollar weakness and regional currency strength, with Asian peers also gaining ground.

The dollar index fell to 97.1, its lowest since March 2022, as investors reassessed the credibility of U.S. monetary policy amid rising political interference concerns. Markets grew wary after speculation that President Donald Trump could accelerate the appointment of a new Federal Reserve Chair, potentially undermining the central bank's independence.

This unease, combined with easing geopolitical tensions following the Israel-Iran ceasefire, removed the safe-haven bid that had recently propped up the greenback. Risk appetite improved globally, and Asian currencies saw strong buying. The Taiwan dollar led regional gains, while Indian equities also outperformed, providing further support to the rupee.

Domestically, dollar sales from two major foreign banks—likely acting on behalf of overseas investors or custodial clients—also aided rupee gains, according to traders. With foreign institutional investors resuming equity purchases and global risk sentiment on the mend, the rupee tracked higher alongside regional peers.

Unit	Today	Previous
Dollar/Rupee	85.71	86.08
Dollar Index	97.15	97.65
1-year Dollar/rupee premium (%)	2.00%	1.97%

OUTLOOK
Equity markets are expected to extend their bullish momentum, with large-cap financials, energy, and IT stocks likely to lead gains. The Nifty 50 breaching the 25,500 mark has lifted sentiment, while the record close in Nifty Bank suggests continued strength in private sector lenders. However, broader market participation may remain mixed, especially in midcaps and realty stocks, as valuations remain stretched and profit-booking could emerge. Defensive buying may return to sectors like FMCG and healthcare if volatility picks up due to either geopolitical tensions or US data surprises.

Bond markets may stay cautious ahead of the large debt auction and RBI’s ₹1 trillion VRRR operation. While Thursday saw short-covering-driven gains, further upside in bond prices will depend on auction demand and clarity on the RBI’s liquidity strategy. Traders will monitor whether the VRRR signals a structural liquidity tightening or a temporary adjustment. Any signal of more such operations could pressure shorter-duration yields. Meanwhile, the RBI’s elevated holdings of government securities may begin to reduce gradually as the central bank tightens balance sheet management.

The rupee is expected to trade with a slight appreciation bias in the near term, supported by foreign inflows and a weaker dollar. However, gains may be capped near the 85.50–85.60 zone as month-end dollar demand from importers and volatility in oil prices persist. Stability in crude and the absence of fresh geopolitical shocks could allow the rupee to consolidate, though fragile global sentiment may limit sharp moves.

Key Events & Data Due Friday:
Economic Data

• US May PCE Price Index
• US Baker Hughes Oil Rig Count

Corporate Actions

• Bannari Amman Spinning Mills to consider fund raising
• Capri Global Capital to consider fund raising

Policy Events

• EU Leaders Summit  
• US FOMC Member Williams speaks