Indian benchmark indices BSE Sensex and Nifty50 are poised for a positive opening on Monday, driven by news of a potential US-Iran peace agreement that has sent global crude oil prices below $85 per barrel. The markets wrapped up a turbulent week with solid gains, ending a two-week stretch of losses as global sentiment improved and investors welcomed Reserve Bank of India measures aimed at encouraging foreign currency inflows.
Market Outlook
Indian equities may witness an uptrend as easing concerns surrounding the US-Iran conflict improve global risk sentiment. The sharp market recovery suggests that investors are beginning to price in a more favourable geopolitical outcome. While a formal agreement remains pending, the moderation in crude oil prices and appreciation of the rupee to 94.9 against the US dollar have improved the near-term outlook for domestic equities.
Markets witnessed a sharp upward move on Friday, supported by optimism surrounding a potential US-Iran agreement and the subsequent decline in crude oil prices. The Nifty gained 2% to close at 23,622, while the Bank Nifty surged 3%, reflecting strong buying interest in financial stocks. Broader markets outperformed, with the Midcap100 and Smallcap100 indices advancing 2.4% and 2.8%, respectively. Sectorally, all major sectors ended in the green, with Realty, Private Banks, and Public Sector Banks emerging as the top gainers. Meanwhile, India VIX declined 5.7%, indicating easing volatility and improving investor confidence.
Going forward, the key monitorables will be India's Consumer Price Index inflation data on Friday and Wholesale Price Index inflation data this week. Global cues will also remain important. Additionally, developments in the US-Iran negotiations, crude oil price movements, and Foreign Institutional Investor flows will remain key factors influencing market sentiment, said Siddhartha Khemka, Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd.
Crude Oil Prices Fall
Sean Callow, senior foreign-exchange analyst at ITC Markets, told Reuters that the absence of detailed information, particularly regarding unrestricted maritime access, remains a concern. Nevertheless, he noted that markets were likely to focus on the sharp improvement in risk appetite and the possibility of sustained declines in energy prices.
A prolonged fall in oil prices could significantly alter the outlook for monetary policy, especially with several major central banks due to announce policy decisions this week. Lower energy costs would help ease inflation concerns and reduce the urgency for further tightening measures.
Although investors had already anticipated the likelihood of a deal, confirmation of progress was enough to trigger another decline in crude prices. Brent crude dropped 4% to $83.80 a barrel, well below its May peak of $126.41, while US crude fell 4.7% to $80.89. Even so, prices remained above levels seen before the conflict began.
Asian Markets Rally
Asian equities advanced sharply on Monday, while the US dollar weakened and crude oil prices fell steeply after signs of a preliminary agreement between the United States and Iran boosted hopes of lower global inflation and reduced pressure on central banks to keep interest rates elevated.
Pakistan Prime Minister Shehbaz Sharif announced on social media that an agreement had been reached, while US President Donald Trump said the arrangement would include the reopening of the strategically important Strait of Hormuz. However, he did not disclose further details. Trump is scheduled to meet Middle Eastern leaders and hold discussions with Ukrainian President Volodymyr Zelenskiy during this week's G7 summit in France.
Iran stated that shipping through the Strait of Hormuz would be overseen jointly by Tehran and Oman. The move raised questions about future trade arrangements and suggested that vessels using the route could potentially face additional charges.
Crude Could Go Below $80
Vivek Dhar, mining and energy analyst at CBA, said Brent crude could decline to around $80 a barrel by year-end if the Strait of Hormuz remains open. However, he cautioned that the outlook remains uncertain and depends heavily on the extent of damage to oil and refining infrastructure as well as the speed at which exports normalise.
The prospect of cheaper energy supported markets across the region. Japan's Nikkei climbed 3%, benefiting from the country's status as a major energy importer. South Korea's benchmark index gained 4.3%, while MSCI's broad Asia-Pacific index excluding Japan rose 1.5%.
European equity futures also pointed higher, with Euro Stoxx 50 and DAX futures advancing 0.2% each, while FTSE futures added 0.3%. US futures reflected the positive mood. S&P 500 futures rose 0.9%, while Nasdaq futures gained 1.5% as investors increased exposure to risk assets.
FII Outflow Trends
Foreign Institutional Investors (FIIs) continued to remain sellers in the Indian market in the second week of June, offloading ₹152.16 billion based on provisional exchange data. Domestic Institutional Investors (DIIs) were net buyers, purchasing ₹240.14 billion as per provisional exchange data. FIIs remained net sellers in all five trading sessions during the current week, while DIIs remained net buyers in all five trading sessions.
Benchmark indices snapped their two-week declining trend and closed last week higher by more than 1%. The index witnessed a strong upward move on Friday's session driven by aggressive short covering amid improving global sentiment. Optimism surrounding a potential US-Iran peace deal, a decline in crude oil prices below the $88 mark, and a sharp recovery in the Indian Rupee led to improvement in market sentiment.
Nifty started the week on a negative note and formed an intra-week low of 23,070 on Monday's session. The index thereafter consolidated in a range during most of the week. However, strong buying demand on Friday's session saw the index recouping its entire decline and close the week near the high above 23,600 levels, up by 1.1%.
FII flows in the coming week will depend on the development of the peace talks between the US and Iran, the FOMC and Bank of Japan rate decisions, and central bank commentary thereafter, said Bajaj Broking Research.
