Markets closed sharply lower on Friday, with a near-300-point freefall in the final 30 minutes of trade wiping out most of the day’s gains, as MSCI’s May 2026 index rebalancing triggered an estimated $800 million to $1 billion in passive foreign outflows from Indian equities.
MSCI rebalancing triggers sharp late-session selloff
“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,” said Siddhartha Khemka of Motilal Oswal Financial Services.
The Sensex declined 1,092 points, or 1.44 per cent, to settle at 74,775, while the Nifty 50 tumbled 359 points, or 1.50 per cent, to close at 23,547. NSE cash market turnover more than doubled compared to the previous session, largely driven by rebalancing-related trades. On a weekly basis, the Nifty ended 0.72 per cent lower. Federal Bank, MCX, NALCO and Indian Bank were added to the MSCI Standard Index, while Rail Vikas Nigam, Kalyan Jewellers, Jubilant FoodWorks and Hyundai Motor India were removed.
Early gains erased despite positive global cues
Markets had opened on a firm note after reports emerged that the United States and Iran had reached a preliminary agreement to extend their ceasefire by 60 days and ease shipping restrictions through the Strait of Hormuz. The Nifty briefly touched 24,002 before selling pressure at that psychological level triggered a reversal. Heavy selling in Reliance Industries, down over 1.6 per cent, and ITC, down over 3 per cent, along with weakness in banking majors HDFC Bank and ICICI Bank, deepened the decline. Barring the Nifty IT index, all sectoral indices closed in the red, with Oil & Gas, Metals, and Auto leading losses. The Midcap 100 fell 1.33 per cent and the Smallcap 100 declined 0.85 per cent.
IT stocks outperform amid weaker rupee
The IT sector remained the lone bright spot, gaining over 2 per cent on the back of overnight gains in US technology stocks and a weaker rupee. TCS stayed in focus after the company denied reports of losing a major client mandate in Canada, providing additional support to the sector.
Monsoon concerns and inflation fears weigh on sentiment
On the macro front, the IMD’s downward revision of the 2026 southwest monsoon forecast to 90 per cent of the Long Period Average, from an earlier estimate of 92 per cent, amid rising El Niño risks, rattled investor sentiment, stoking fears of food inflation. “The prospect of deficient rainfall…has heightened fears of elevated food inflation in the coming months,” said Vinod Nair of Geojit Investments.
The rupee, however, bucked the trend, appreciating 69 paise to close below 95.20 against the dollar — its strongest single-day gain since April 2 — aided by softening crude oil prices, which fell over 1.5 per cent to below $88 per barrel. Crude has now fallen over 17 per cent in May. MCX Gold declined around ₹950 to ₹1,55,975, while COMEX gold edged higher near $4,526.
Markets await RBI policy outcome and global cues
Looking ahead, markets are expected to remain range-bound, with investors closely watching the RBI Monetary Policy Committee meeting scheduled for June 3–5 — where the repo rate is widely expected to be held at 5.25 per cent — alongside further developments in US–Iran negotiations and crude oil price movements. “As long as Nifty trades below the 50-day SMA of 23,700…the weak sentiment is likely to continue,” cautioned Amol Athawale of Kotak Securities, flagging 23,300–23,000 as the next support band on the downside.