Benchmark indices Sensex and Nifty are headed into a crucial week as investors track conflicting signals around potential US-Iran peace talks, with uncertainty over a possible deal likely to keep global markets volatile. The sharp correction in crude oil prices, which logged their steepest weekly fall in six weeks, is also expected to influence sentiment when trading resumes on Monday.
The Indian stock market witnessed a sharp selloff on Friday afternoon, with the Sensex and Nifty falling over 1% as passive fund flows linked to the MSCI index reshuffle weighed on sentiment. Sensex dropped over 1,092 points to 74,776 while Nifty 50 crashed nearly 359 points to 23,547. The sharp losses wiped off nearly Rs 6 lakh crore from the total market capitalisation of all companies listed on BSE, pulling it down to Rs 465 lakh crore.
Fresh tensions continue to cloud efforts to sustain a fragile truce in West Asia. US Defence Secretary Pete Hegseth said Washington is prepared to resume strikes on Iran if nuclear talks fail, while reiterating President Donald Trump’s preference for a diplomatic agreement that prevents Tehran from acquiring nuclear weapons.
Meanwhile, Iran is moving to formalise its control over the Strait of Hormuz, with lawmakers expected to vote on legislation governing the strategic waterway. Iranian military officials have warned that vessels must follow routes designated by Tehran and obtain permission from the IRGC Navy to transit the strait.
Will oil fall further?
Oil prices plunged to their lowest levels in seven weeks, easing concerns over energy-led inflation after reports suggested the United States, Israel and Iran were moving closer to a long-awaited peace agreement.
However, despite signals that an agreement may be near, Washington and Tehran continue to differ on key aspects of the proposed deal. The decline came as hopes of a breakthrough in the three-month U.S.-Iran conflict strengthened expectations that the Strait of Hormuz could reopen fully. The strategic waterway handles around one-fifth of global oil and gas shipments, and any easing of disruptions could improve supply flows.
Foreign portfolio investors (FPIs) emerged as heavy sellers in Indian equities on Friday, pulling out a net Rs 20,637 crore in a single session, to record one of the sharpest single-day selloffs in recent years, as markets grappled with the impact of the latest MSCI index rebalancing.
Foreign institutional investors (FIIs) have withdrawn a hefty $53 billion from Indian equities since late 2024, putting pressure on several large-cap stocks even as domestic institutional investors emerge as the market’s primary support, according to Jefferies. The sustained selling has taken a toll on market performance. MSCI India has fallen around 8% between September 2024 and May 2026, underperforming the MSCI Emerging Markets index by 67 percentage points in dollar terms.
Can the rupee strengthen?
Rupee rose 53 paise to close at 95.05 against the US dollar, as against the previous closing level of 95.69. The Indian currency recorded its best single-day gain since April 2.
Ponmudi R, CEO of Enrich Money, said the USD/INR pair is currently trading below the Rs 95 mark, retreating from the week's high near Rs 95.9 and helping the rupee end the week with a net appreciation. The pair remains close to the lower boundary of its long-term ascending trendline, indicating a gradual easing in dollar strength amid improving global risk sentiment.
From a technical standpoint, the weekly chart has formed a shooting star pattern, signalling rejection at higher levels and suggesting bearish momentum could build in the near term. Immediate resistance is seen around Rs 95.2, and a sustained move above this level could pave the way for a recovery towards the Rs 95.4–Rs 95.6 range.
From a technical standpoint, Nifty continues to trade below all its key moving averages. More importantly, these moving averages have flattened out, indicating the absence of a strong trend. The daily RSI remains in a sideways zone as per the RSI Range Shift framework, while the daily Stochastic oscillator is also moving within a narrow band, says Sudeep Shah, Head of Technical and Derivatives Research at SBI Securities.
Adding to this, the trend strength indicator, Daily ADX, is placed at near 15 level and continues to decline, suggesting a lack of directional momentum in the index. While these indicators point towards a lack of trend, Friday's late sell-off has injected fresh uncertainty into the market setup.
Markets are expected to remain highly sensitive to geopolitical and macroeconomic developments in the coming week, with investor attention firmly focused on the evolving U.S.–Iran negotiations, broader diplomatic developments in the Middle East and the trajectory of crude oil prices.
While expectations of a potential agreement have helped improve risk sentiment and drive a sharp correction in energy prices, investors remain cautious as a definitive breakthrough has yet to materialise.
