Markets bounce back amid ease in geopolitical tension; rupee fall continues

June 21, 2025 | Mumbai

Indian equity markets witnessed a broad-based recovery on Friday as easing geopolitical tensions and a rebound in global risk appetite buoyed investor sentiment. However, the Indian rupee continued its downward trajectory against the US dollar, raising concerns over imported inflation and policy tightening.

Geopolitical Relief Sparks Rally

Markets surged as news broke of de-escalation talks between Israel and Iran, as well as improving diplomatic channels between Russia and NATO allies. These developments helped ease global crude oil prices and reduce volatility across emerging markets.

The benchmark BSE Sensex closed up 468 points or 0.62% at 75,382, while the NSE Nifty50 rose 132 points or 0.59% to settle at 22,943. Gains were led by auto, IT, and banking stocks, while FMCG and pharma lagged.

"Markets are breathing a sigh of relief. The geopolitical overhang had kept investors jittery, but some clarity and a pause in tensions have allowed a risk-on sentiment to return," said Rahul Arora, CEO of Nirmal Bang Institutional Equities.

Rupee Slide Remains a Concern

Despite the equity bounce, the Indian rupee weakened further, ending the session at ₹84.91/$, compared to ₹84.74 in the previous session. Persistent dollar strength, concerns over FII outflows, and India’s widening trade deficit have exerted pressure on the local currency.

"The rupee is underperforming its Asian peers. Though crude has slightly cooled, the balance of payments situation remains fragile, and the RBI may need to step in if volatility rises further," said Madhavi Kulkarni, FX strategist at Kotak Securities.

RBI's reported dollar sales earlier this week had only a limited and short-lived impact on the rupee, indicating the downward momentum may continue unless capital inflows improve.

Sectoral Performance and Stock Movers

On the sectoral front, the Nifty Bank index jumped 0.85%, buoyed by a recovery in private lenders. IT stocks also gained on optimism over a potential rate-cut cycle in the US, which could support tech spending in major markets.

Top gainers on the Nifty included Tata Motors (+3.2%), Infosys (+2.6%), and HDFC Bank (+1.8%). On the downside, Hindustan Unilever (-1.5%), Sun Pharma (-1.2%), and ITC (-0.8%) weighed on the index.

Broader markets also performed well, with the Nifty Midcap 100 and Smallcap 100 indices gaining 0.95% and 1.1% respectively, reflecting renewed investor interest beyond blue chips.

Global Cues Improve, But Caution Persists

Asian markets ended mostly higher, with Nikkei 225 gaining 0.5% and Hang Seng up 0.7%, tracking overnight Wall Street gains. European indices opened firm as well, buoyed by easing energy prices and falling bond yields.

However, analysts caution that the relief rally may be short-lived unless the global macro improves decisively.

"There's a lot of nervousness under the surface. Inflation in developed economies is still sticky, and central banks are far from done. Investors should not confuse a short-term bounce with a structural turnaround," noted Devika Shah, Fund Manager at Axis Mutual Fund.

Investor Outlook: Stay Balanced Amid Volatility

While today’s rebound offers some respite, market experts advise maintaining a balanced approach, especially as the monsoon season and Q1FY26 earnings approach.

"The key driver going forward will be earnings momentum and monsoon progression. Investors should focus on quality names in banking, auto, and capital goods, while staying cautious on export-oriented sectors like IT due to forex uncertainty," said Karthik Srinivasan, Head of Research at Angel One.

Foreign institutional investors (FIIs), who had been net sellers for five consecutive sessions, turned net buyers with ₹547 crore in inflows on Friday. Domestic institutional investors (DIIs) also remained supportive, pumping in ₹920 crore.

India's equity market rebound highlights the underlying strength in domestic fundamentals amid temporary global shocks. However, the continuous weakening of the rupee and the uncertain global environment mean investors must tread carefully.

Near-term focus will remain on macroeconomic indicators, foreign fund flows, and geopolitical updates. For now, the easing of global tension has opened a window of opportunity — but it’s a window that needs to be approached with discipline and a long-term view.