EF Digest - June 2026

Dear Investors,

The stock market was volatile in May 2026 due to lingering uncertainty about peace talks between the United States and Iran. Both sides have carried out strikes on each other's military bases while talks were going on. The Nifty and Sensex fell by 2 - 3% on a month-on-month basis in May. Nifty closed the month below the sentimentally important level of 24,000.

FII flows have been negative for the 4 months in the first 5 months of calendar year 2026. The biggest FII selloff was seen in May, with a net outflow of nearly Rs 2.2 lakh crore. The surge in outflows in May is attributed to the MSCI index (which is tracked by many global ETFs) rebalancing. Lower weight given to India in MSCI's rebalancing triggered FII / FPI sell-off. Continued FPI outflows have widened the Balance of Payments deficit and resulted in INR depreciation. FII outflows have impacted large caps, especially Nifty stocks. The broader market outperformed the leading indices in May, with Nifty 500 (comprising large-cap, mid-cap, and small-cap stocks) ending the month flat. Midcaps and Small Caps outperformed large caps. Midcap gained 2.6% MOM, while small caps gained 1.6% in May. Most industry sectors were in the red in May 2026. Telecom, healthcare, capital goods, metals, and automobiles outperformed the broad market index in May, while oil & gas, consumer durables, infrastructure, FMCG, and banks underperformed.

Among international markets, US markets outperformed in May with the S&P 500 rising 5%. The gain in the S&P 500 has been propelled largely by the Big Tech stocks. NASDAQ continued to be a strong outperformer, gaining 10%. Among other developed markets, Nikkei (Japan), DAX (Germany), CAC (France), and FTSE were in the green. Emerging markets continued to outperform developed markets with the MSCI EM Index gaining 9.5%, while the MSCI World Index (index of 23 developed markets) gained 4.3%. The Shanghai Composite (China) was down 1%. India underperformed within the emerging market pack.

The wholesale price index shot up to 8.3% in April 2026, and factory output (IIP) declined. The 10-year G-Sec remained flat at around 7%, but the 364 Day T-Bill yield spiked up nearly 50 bps. The 91-day T-Bill also spiked by 30 bps. Gold prices continued to go up due to a weaker INR, rising 4% month on month in May. Silver was up nearly 10% in May. Though progress in negotiations between the US and Iran has resulted in Brent crude oil price below $100 per barrel, sentiment in the market has been risk-off.

These are difficult financial circumstances for any economy, but more so for a growing consumption-driven economy like India, which relies mostly on imports from the Middle East for its oil and gas needs. War is always unpredictable. The market may continue to remain volatile or range-bound if the stalemate in the Persian Gulf continues and energy flows remain disrupted. Valuations seem reasonable at the broad market level and across market cap segments. Long-term investors may find current valuations attractive.

In the long term, large, mid, and small-cap Indian companies are likely to benefit from the structural reforms made by the Government, e.g., Atmanirbhar Bharat, Make in India, Digital India, Atal Innovation Mission, Defence sector reforms, labour law reforms, etc. Investors should remain disciplined and continue to invest with long investment horizons.

Best Wishes,

Ajoy Agarwal,

(Managing Director)