EF Digest - May 2026

Dear Investors,

The stock market recovered after the US and Iran agreed on a ceasefire. The Nifty gained 7.5% in April 2026, closing near the 24,000 level. The Sensex climbed to 76,913, gaining 6.9% on a month-on-month basis. The broader market outperformed the leading indices in April. Midcaps gained 10.7% on a month-on-month basis, while small caps gained 13.4%. Among industry sectors, power, realty, capital goods, infrastructure, metals, telecom, FMCG, and consumer durables outperformed the broad market in April 2026. IT, healthcare, oil & gas, and automobiles underperformed in April 2026.

Risk sentiments improved globally. The US market was strong, with the S&P 500 rising 10%. NASDAQ was a strong outperformer, gaining 15%. Among developed markets, Nikkei (Japan), DAX (Germany) and CAC (France) were in the green. FTSE remained flattish in April. The Shanghai Composite (China) gained 5.65%. Emerging markets outperformed with MSCI Emerging Market gaining nearly 15% in April. FII sell-off in March continued in April, with net sales of nearly Rs 60,500 crores. Mutual fund net purchase in the equity market moderated to around Rs 20,000 crores.

The ceasefire stabilized financial markets. Though yields have been rising and bond prices fell, equity markets rebounded. US 10 Treasury Bond yields jumped by 40 bps since the start of the Iran War. The US Federal Reserve kept interest rates unchanged in the April FOMC meeting, while highlighting inflation risks. The Strait of Hormuz, through which 20% of global oil and gas supplies flow, is virtually shut. With the US Navy blockading Iranian ports, the energy crisis has worsened. Brent crude prices have skyrocketed to over $113 per barrel. The 10-year G-Sec remained firm, inching up by 6 bps. However, short-term yields have declined, with the 364 Day T-Bill yield softening by 15 bps. The INR depreciated further, closing the month at 94.75 to a dollar. The US Dollar has been fluctuating. Precious metals like gold and silver gained due to a weakening dollar. Gold gained 2.5%, while silver gained 4.8% in April.

A lasting ceasefire, however, remains elusive since both sides have taken a hard stance on certain issues, e.g., Iran’s nuclear program. With Iran shutting off the Strait of Hormuz for commercial shipping and the US blockading Iranian ports, both sides are exerting economic pressure to force the other side to come to terms. The naval blockade strategy of both sides has caused a severe energy crisis, which is worsening. Crude oil prices, which are already quite high, may rise further. Even if both sides lift the blockade, energy supplies will take several months to get restored to pre-War levels. Oil and gas plants that have shut down cannot be restarted immediately. Damage to the infrastructure in the Gulf region will also take time to get repaired and fully restored.

Even though the market has rebounded, valuations are still below long-term historical average. Valuations have also come down across broader market cap segments, i.e., midcaps and small caps. Investors should continue SIPs in mid and small caps, with a long investment horizon. The overall economic and market environment is uncertain. Even though markets have stabilized somewhat, we may see a range-bound, sideways market with some short-term volatility.

These are difficult financial circumstances for any economy, but more so for a growing consumption-driven economy like India, which relies mostly on imports for its oil and gas needs. With strong macroeconomic fundamentals e.g. robust GDP growth, narrowing fiscal deficit etc, improving corporate balance sheets, growth in consumption demand post GST cuts and reform oriented policy framework, the long term outlook of Indian equities is positive. Investors need to be disciplined in their investments. Investors need to be disciplined in their investments and have long investment horizons.

Assuring you of our best services.

Best Wishes,

Ajoy Agarwal,

(Managing Director)