Sensex, Nifty Drop Over 1% After Record Rally as Markets Consolidate

Market Retreat After Historic Surge

India’s benchmark indices experienced a sharp pullback on May 13, 2025, with both the Sensex and Nifty 50 turning negative in the afternoon after an explosive rally the previous day. On May 12, both indices surged nearly 4% in what was the strongest single-day gain in over four years, driven by the India-Pakistan ceasefire and easing global trade tensions. The reversal on Tuesday saw the Sensex lose 1,231 points (1.49%) to drop to 81,197, while the Nifty 50 was down 322 points (1.29%) at 24,602 by 1:27 p.m.

Highlights:

• Sensex and Nifty retreat over 1% after Monday’s record surge

• Investors remain optimistic, backed by strong foreign portfolio inflows and easing geopolitical tensions

• Pharma stocks are in focus following President Trump’s executive order on drug pricing

Investor Sentiment Remains Positive Despite Near-Term Correction

Investor sentiment remains largely upbeat, with strong foreign portfolio inflows (FPIs) continuing to support the market. So far in May 2025, FPIs have invested around $1.7 billion in Indian equities, buoyed by improving domestic growth prospects, a softer U.S. dollar, and de-escalating global trade tensions between the U.S. and China. On May 12, foreign investors pumped in Rs 1,246 crore ($146.9 million) into Indian equities.

However, analysts caution that Monday’s surge was driven largely by short-covering and retail enthusiasm, rather than institutional buying, which could limit the upside momentum in the near term.

Highlights:

• FPIs have invested $1.7 billion in Indian equities this month

• Analysts caution that the rally lacked institutional backing, which could limit further gains

• Domestic growth prospects and easing trade tensions continue to support sentiment

Sectoral Performance: Auto, FMCG, and Banks Under Pressure

On May 13, key sectors such as auto, FMCG, and banks came under pressure as the market corrected. Among the Sensex constituents, Infosys, Kotak Mahindra Bank, ICICI Bank, and Power Grid recorded losses of up to 2%. Meanwhile, Sun Pharma, IndusInd Bank, Bajaj Finance, and Tech Mahindra opened higher, partly offsetting the broader declines.

Despite the correction, the previous day’s rally continued to have an impact, with pharma stocks seeing attention after U.S. President Donald Trump signed an executive order aimed at reducing U.S. drug prices. This news has kept pharma stocks in focus, although the immediate impact is yet to be seen.

Highlights:

• Auto, FMCG, and banks were the worst performers on May 13

• Pharma stocks are in focus following U.S. executive order on drug pricing

Global Markets Watch

Global markets showed mixed signals as the S&P 500 futures declined 0.2%, while the Hang Seng futures were largely flat. On a more positive note, Japan’s Topix rose 1.7% and Australia’s S&P/ASX 200 gained 0.9%. Euro Stoxx 50 futures also rose by 1.6%, reflecting global optimism despite the correction in Indian equities.

Highlights:

• S&P 500 futures fell 0.2%, while Hang Seng futures remained flat

• Japan’s Topix rose 1.7%, and Australia’s S&P/ASX 200 gained 0.9%

• European markets, represented by Euro Stoxx 50, saw a 1.6% rise

Chinese Defence Stocks Tumble After India-Pakistan Ceasefire

In a related development, Chinese defence stocks plunged by up to 9% after the India-Pakistan ceasefire was announced on May 10, 2025. Stocks like AVIC Chengdu Aircraft and Zhuzhou Hongda unwound gains that had been made during the brief conflict period. These stocks had surged earlier due to speculations about increased Chinese arms exports to Pakistan, as China accounts for 81% of Pakistan’s arms imports from 2019 to 2023. However, the ceasefire has dampened these expectations, leading to a sharp decline in stock prices.

Highlights:

• Chinese defence stocks fall by up to 9% after the India-Pakistan ceasefire

• The market had priced in the possibility of increased Chinese arms exports to Pakistan

• Ceasefire announcement reduces war premium in defence stocks

Equity Mutual Funds Deliver Strong Returns Over 5 Years

Equity mutual funds have performed well, with four categories offering over 30% average returns in the past five years. The top performers were small-cap funds (34.87%), PSU funds (34.37%), infra funds (33.59%), and mid-cap funds (30.72%). Among individual funds, Quant Small Cap led with a return of 48.41%, followed by CPSE ETF at 40.58% and Quant Infra at 41.18%.

Highlights:

• Small-cap funds and PSU funds lead with over 34% returns in the past 5 years

• Quant Small Cap and CPSE ETF among the top-performing funds

• Past performance not indicative of future returns, but investors should consider their goals and risk appetite