Indian equities surged in May as defence stocks and microcaps led a broad-based rally, with investor appetite turning decisively risk-on. The rally picked up further pace in June following a surprise rate cut by the Reserve Bank of India (RBI), lifting rate-sensitive sectors and extending bullish momentum.
According to a report by Motilal Oswal, the benchmark Nifty 50 rose 1.71% in May, while the broader Nifty 500 advanced 3.50%. Gains were strongest in the microcap segment, where the Nifty Microcap 250 jumped 12.10%, outpacing other indices, as reported ET. The Nifty Smallcap 250 rose 9.59% and the Nifty Midcap 150 gained 6.30%. Large-cap performance was more moderate, with the Nifty Next 50 up 3.49%.
Sectorally, defence stocks emerged as the biggest winners, climbing 21.84% in May amid robust order visibility, government-backed indigenisation, and continued investor enthusiasm. Over the past 12 months, the defence sector has gained 30.78%, the highest among all sectors.
“All major sectors shown positive trend except for FMCG and Utilities which saw a downtrend during this period of -0.09% and -0.04% respectively,” the brokerage noted.
Factor-based strategies also outperformed. The Momentum index gained 5.40%, the Quality index rose 4.82%, and the Enhanced Value index climbed 4.20%. The Low Volatility index rose 1.39%, reflecting investor preference for trend-driven and fundamentally sound portfolios.
Investor optimism strengthened further in June after the RBI delivered a sharper-than-expected 50-basis-point cut in the repo rate and eased the cash reserve ratio (CRR) on June 6. The move, seen as supportive for liquidity and credit growth, triggered a rally in rate-sensitive stocks, with the realty index gaining nearly 5% on the day.