India’s equity market witnessed a sudden dip during the closing hours of Friday’s trading session with benchmarks – BSE Sensex and NSE Nifty50 - falling up to 1.50% as forecast of a lower monsoon, tension in West Asia and MSCI rebalancing spooked investors. The Sensex ended 1,092 points, or 1.44%, lower at 74,775.74, while its NSE counterpart Nifty settled at 23,547.75, down 359 points, or 1.50%.
According to analysts at Bajaj Broking, investor sentiment remained cautious following the IMD’s monsoon forecast at 90% of the Long Period Average (LPA), while a rise in India VIX reflected heightened market volatility. The pressure intensified during the final hours of trade after the MSCI Global Standard Index rebalancing came into effect, triggering heightened volatility in select stocks amid expected passive fund flow adjustments and portfolio rebalancing activity.
The MSCI Global Standard Index rebalance taking effect on May 29 is expected to prompt sizable passive fund flows into Indian stocks. The update adds four companies, removes four others, and alters weightings with some large-cap firms seeing their allocations rise and others fall. Market participants are watching closely as global passive funds and ETFs that follow MSCI benchmarks reallocate holdings to match the revised index.
Siddhartha Khemka - Head of Research, Wealth Management, Motilal Oswal Financial Services said that lingering uncertainty surrounding the ongoing US-Iran negotiations and continued concerns over geopolitical stability in West Asia kept overall risk appetite subdued across both global and domestic markets.
He added that while global cues have turned relatively supportive, the India Meteorological Department’s downward revision of the 2026 southwest monsoon forecast to 90% of the Long Period Average from the earlier estimate of 92%, amid rising risks of weak El Nino conditions from June onward, could emerge as a key domestic overhang for rural and agriculture-linked sectors.
On the sectoral front, almost all sectors ended in the red, reflecting widespread profit booking and a risk-off sentiment. Major weakness was witnessed in Nifty Oil & Gas, Metal, Auto, and Healthcare stocks. Investors' wealth eroded by Rs 6 lakh crore as the overall market capitalisation of BSE-listed firms declined to Rs 465 lakh crore on Friday from nearly Rs 471 lakh crore in the previous session.
Meanwhile, shares of fertiliser, seed and tractor companies such as FACT, Kaveri Seed Company, and Eicher Motors witnessed heavy selling due to a weak monsoon forecast for the June-September season. This has raised concerns over crop output, rural incomes and demand for agricultural inputs.
Vinod Nair, Head of Research, Geojit Investments said that the prospect of deficient rainfall, coupled with the increasing likelihood of an El Niño weather pattern, has heightened fears of elevated food inflation in the coming months.
However, the downside risk appears partially mitigated by the recent moderation in crude oil prices and bond yields. The Rupee traded strongly on Friday with gains of around 0.80% near 95.00, extending its recent recovery as crude oil prices eased.
Nair added that in the near term, investor attention is expected to shift toward key domestic triggers, particularly the upcoming RBI monetary policy decision and GDP data release, which will provide further insights into the inflation trajectory and overall economic momentum.