Market weekly wrap: Sensex, Nifty end in red as FIIs pull out ₹12,000 crore; here's what lies ahead 

After a strong rally last week, India's benchmark indices, the Sensex and the Nifty, ended the week on a negative note. The market experienced heightened volatility due to turbulence in the global bond markets. Fears about the fiscal woes of the US after Moody's downgraded its sovereign rating and a fresh sell-off by foreign institutional investors (FIIs) dampened market sentiment.

For the week ended May 23, the benchmark BSE Sensex declined 610 points, or 0.74%, to settle at 81,722, while the NSE Nifty50 closed at 24,853, down 167 points, or 0.66%. In a similar trend, the broader market also ended flat, with the BSE Midcap index losing 0.3%, while the BSE Smallcap index rose 0.9% on a week-on-week (WoW) basis.

On the sectoral front, the indices saw a mixed reaction, with realty and metal emerging as the top performers for the second consecutive week, while consumer durables, auto, IT, and FMCG settled lower. On the thematic front, select stocks in the defence space extended their gaining streak amid a strong demand outlook.

“The market's muted performance was driven by a combination of global and domestic factors. On the global front, rising US bond yields and concerns over the United States' mounting debt burden triggered foreign portfolio outflows, putting pressure on emerging markets, including India. Additionally, speculation around favourable developments in the US-China trade deal raised concerns about potential capital outflows or reduced inflows into Indian markets, further denting sentiment,” said Ajit Mishra, SVP-Research, Religare Broking.

On the domestic front, mixed corporate earnings and delays in finalising the India-US trade agreement added to the uncertainty, prompting profit-booking and a guarded stance among market participants, he added.

FIIs sell equities worth nearly ₹12,000 crore

FIIs withdrew ₹11,998 crore from the Indian equities cash market last week. Despite this significant sell-off, they continue to remain net buyers for May with a total purchase of ₹12,192 crore.

The recent fund outflows by foreign investors are driven by fragile market conditions in the absence of any major trigger, rising valuations of Indian equities, and global factors such as Moody's downgrade of America's credit rating amid its rising debt situation.

“Despite heavy FII selling over the past few days, the Indian market showed resilience, supported by strong buying by DIIs (domestic institutional investors) and retail participants, reflecting continued confidence in India’s long-term growth prospects. Expectations of a normal monsoon, which is favourable for agricultural productivity, combined with declining crude oil prices, are likely to keep inflationary pressures subdued,” said Vinod Nair, Head of Research, Geojit Investments.

A softer inflation outlook provides the Reserve Bank of India (RBI) with greater flexibility to maintain its accommodative monetary policy stance, potentially paving the way for interest rate cuts to support economic growth. The central bank is expected to cut the repo rate by 50 basis points in the upcoming policy meeting next month.

Key events to watch next week 

In the week ahead, market participants will first react to RBI’s record dividend transfer of ₹2.7 lakh crore to the government and its implications for fiscal policy. Additionally, the release of India’s industrial and manufacturing production data for April, scheduled for May 28, along with the Q4 GDP growth figures, will offer insights into the economic recovery trajectory. Updates on the progress of the monsoon will also be closely monitored, said Mishra of Religare Broking.

On the global front, developments in the US bond market, the release of FOMC minutes, and progress in the India-US trade negotiations will continue to influence market sentiment. Trump’s tariff tantrums, too, have begun again, which will also be on investors’ radars.

Moreover, the scheduled monthly expiry of May derivatives contracts and the final leg of the Q4 earnings season, with results from key companies like Bajaj Auto, Aurobindo Pharma, and IRCTC, will remain in focus.

“Looking ahead, investors will be closely watching the upcoming Indian GDP figures, along with US Budget, inflation data, and weekly jobless claims, to gauge the strength and trajectory of economic recovery both domestically and globally," said Nair of Geojit Investments.

Technical Outlook

The Nifty’s inability to sustain levels above 25,200 suggests that the index is undergoing a consolidation phase, with immediate support around 24,500, near its short-term moving average (20-DEMA). “A breach below this level could lead to further downside toward 24,100, potentially derailing the prevailing positive trend. On the upside, a decisive breakout above 25,200 could reignite bullish momentum and pave the way toward the 25,600 level,” said an analyst at Religare Broking.

The brokerage recommends that investors maintain a positive bias unless the Nifty decisively breaks below the 24,500-mark, with a continued focus on stock selection. Investors should focus on key sectors such as banking, financials, energy, metals, and realty while remaining selective in others. “Traders are advised to maintain strict stop-loss levels and stay prepared for heightened volatility. Keeping abreast of global developments and key domestic policy announcements will be essential in navigating the markets in the weeks ahead.”

According to SBI Securities, the zone of 24,950–25,000 will act as an immediate resistance for the Nifty. “A decisive close above 25,000 could unlock further upside towards 25,300 and eventually 25,500 in the short term. On the downside, the 20-day EMA zone of 24,550-24,500 remains a crucial support, and any weakness toward this zone is likely to attract buying interest.