Global Bond Rout Adds to India Stock Bulls' Rupee Worries

USD/INR₹95.97+0.2%Nifty 50 Index23,643.50-0.2%India 10-Year Bond Yield7.06%+0.02Spot Gold ($/oz)$4,535.10-0.1%S&P 500 Futures7,389.25-0.6% Market data as of 08:15 AM IST, May. 18, 2026, or the previous close for Indian markets. Data is subject to provider delays. Good morning... I'm Ashutosh Joshi in Mumbai, bringing you the latest market trends. Indian equities head into Monday on shaky footing after the benchmark Nifty posted its worst weekly loss since mid-March, weighed down by higher crude prices and a currency that slid to yet another record low. Oil extended gains in Asian trading on Monday, while regional stocks are down as investors grapple with a worsening global backdrop. A surge in global bond yields across the US, UK and Japan is unsettling markets. It is also adding pressure on emerging-market assets and currencies by threatening to lure funds away -- creating another headache for Indian equities at a time when foreigners are already exiting the market. The Middle East situation is offering little comfort. President Donald Trump returned from talks in China with limited progress on reopening the Strait of Hormuz, keeping concerns alive over energy supplies and shipping flows. The rupee will remain firmly in focus today after India's trade deficit widened in April. Markets will be watching closely for signs of more policy action to stabilize the exchange rate and stem further volatility. Investors will also track Prime Minister Modi's Europe visit for signs of deepening ties and progress on a free trade agreement with the EU -- especially as ties between the US and China appear to be stabilizing after the Trump-Xi summit. Earnings will also keep traders busy this week, with results due from Indian Oil Corporation, Bharat Petroleum and Life Insurance Corp. In today's newsletter, we write about: * India losing ground in the AI trade * Domestic demand holding up * Foreign fund outflows easing But first, here's why investors see India's rupee measures falling short. Markets Buzz: Rupee Risks Keep Building The rupee fell for a sixth straight session on Friday, marking its fourth such losing streak since the start of 2025. This time, however, the 1.8% decline has been the steepest. The government's efforts to support the currency have so far been seen as too weak to make a meaningful impact. Last week's curbs on gold imports are unlikely to significantly narrow the country's widening current-account deficit, while the hike in fuel prices is too small to curb demand, market watchers said. After ending the week at a fresh record low, the rupee may face further weakness unless policymakers take stronger steps to revive capital flows. Three Things to Start Your Day AI trade leaves India behind India stands out as one of the biggest losers as the AI trade reshapes global flows, with its stock market on the verge of dropping out of the world's five biggest for the first time in three years. Overseas funds are chasing themes that India largely lacks, including chipmaking and computing infrastructure, leaving the market tied to the local consumption story. Gary Dugan, CEO of Global CIO Office, says this may be more than a temporary setback tied to earnings or valuations. India's weight in the MSCI emerging markets index has fallen to about 12% from 19% last year. Domestic demand holding up well: Carnelian A key takeaway from the earnings season so far is that local demand remains resilient across most sectors, helping companies pass on higher costs to customers, says Kunal Shah, a fund manager at Carnelian Asset Management. He sees early signs of a recovery in chemical prices, though he wants clearer evidence the trend can sustain. Shah also sees pharma and contract drug manufacturing as a hedge against market turmoil, and remains positive on auto and auto-component stocks. Outflows from India-dedicated funds slowing Persistently high oil prices are keeping investors wary about emerging markets, with China-dedicated funds seeing a sharper risk-off move, Elara says. India, though, is starting to look steadier. Outflows from India-dedicated funds slowed to $274 million last week, while redemptions finally stopped after 11 straight weeks. Still, the market is not quite back in "buy" mode. The $246 million in outflows from long-only funds suggests investors are leaning on passive allocation support rather than broad conviction buying. Stocks to Watch * Bharti Airtel: Prudential to buy a majority stake in Bharti Life for $365 million * Alembic: The drugmaker said the US FDA has made no observations at its Karakhadi facility * Amber Enterprises: The consumer durables firm's March-quarter profit missed estimates * Dr Reddy's: The drugmaker launched a generic semaglutide injection in Canada * Godrej Industries: The firm has approved raising up to 15 billion rupees Modi's UAE Energy Bet Prime Minister Modi's stopover in Abu Dhabi en route to Europe yielded an energy-security pact aimed at reducing India's vulnerability to future oil and gas shocks. Deeper storage ties with the UAE may not ease today's pain, but could provide a bigger fuel buffer during crises. For the UAE, the deal offers a foothold in one of the world's fastest-growing energy markets after leaving the OPEC. We answer some key questions. What exactly did Modi secure in the UAE? Abu Dhabi National Oil Co. or ADNOC will explore a multifold increase in its crude oil storage in India to 30 million barrels. The oil will belong to ADNOC, so India does not have to buy it upfront. In return, New Delhi gets more barrels physically sitting inside the country and also in Fujairah, which improves supply security. Why does this pact matter for India? India is the world's third-largest oil consumer and imports most of its energy needs. When oil prices rise, it must spend more foreign exchange on purchases, putting pressure on the rupee -- as is happening now. Having crude stored locally will reduce emergency purchases during shocks. What is India's oil reserve capacity at present? The India Strategic Petroleum Reserve has built about 39 million barrels of storage across three sites. The UAE deal will add to these stockpiles, without the government paying for all of it upfront. Editor's Choice: Yields Jump on Inflation Angst Three Great Reads * Bond traders see shift toward new era of higher yields * Jane Street doubles capacity in Singapore as expansion rolls on * One hedge fund holds the keys to Ukraine's wartime industries Thank you for reading Markets Daily India. If you haven't yet, sign up here. NEW: Get the AI Today newsletter -- chronicling the disruptions and threats of AI on businesses, workers, governments and economies with analysis from Bloomberg's global newsroom. Enjoying Markets Daily India? 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