Newspaper Summary 070626

 

The day all hedges fell in the US markets

TURBULENCE AHEAD. Markets grapple with the aftershocks of the AI sell-off, rising yields and mounting tensions in West Asia as fear grips investors

By Kumar Shankar Roy and Hari Viswanath (bl. research bureau)

Last Friday was a day when the logic of investing in uncorrelated assets broke down in the US markets. Most stocks fell, while semiconductor stocks crashed. Bonds declined as yields spiked. Gold and silver retreated. Crypto cracked. Crude oil slipped. The iShares MSCI South Korea ETF, traded in the US, tumbled 14.1 per cent. The only thing that went up — and no, that is not a bullish sign — was the VIX or CBOE Volatility Index which shot up nearly 40 per cent, implying fear was the only winner.

FEAR AND FRESH ISSUE

The trigger was not one shock but a pile-up. Results from Broadcom after market close on Wednesday triggered a rout in semiconductor stocks on Thursday and Friday. A solid 48 per cent year-on-year increase in its May quarter revenue was overshadowed by its July quarter outlook for AI chips, which fell short of investors’ lofty expectations.

Further, on Friday, the release of US jobs data for May which solidly beat forecasts added fuel to expectations that the US Fed is now likely to get hawkish amid high inflation and good job market (negates need for rate cuts). This pushed bond yields higher, with the 10-year Treasury yield moving above 4.5 per cent. These factors hurt the two trades that had dominated 2026: Long AI and rate-cut bets. When expensive growth stocks meet rising yields, even good stories need fresh oxygen.

Furthermore, market sentiment has soured over concerns that Big Tech firms may pivot from being buyers of their own equity to net sellers, as they divert capital to fuel their relentless AI infrastructure build-out. Alphabet, Google’s parent, last week moved to raise nearly $85 billion through an upsized equity plan to fund AI ambitions. On Friday, Facebook parent Meta’s stock fell after reports said it could raise tens of billions of dollars for its own AI push, though the company called the report speculation.

That shift matters. For years, cash-rich technology giants were machines of buybacks. Now, the AI build-out is so large that even the richest companies are testing the limits of internal cash flow and debt markets. As bond yields rise, expensive or overvalued equity can become the cheaper currency to fund the build-outs as compared to debt where interest rates are rising.

While Alphabet’s offering found strong bids, including from Berkshire Hathaway, concerns could build over a flood of supply hitting markets. Rumours of additional offerings from Big Tech come just as SpaceX is expected to launch a roughly $75-billion IPO next week. Add to this potential mega listings from Anthropic and OpenAI, and markets may have to brace for an unprecedented wave of equity issuance.

For example, the largest cash equity issuance before Alphabet’s offering was during the US government bailout of AIG, when Treasury bought $40 billion of newly issued preferred stock and took a 79.9 per cent stake in the company. The transaction size was unprecedented and massive but was warranted in a crisis situation. Alphabet’s capital raise is more than twice as large — and more could follow. Gold’s decline made its returns flat for the year against the dollar, while silver has slipped into negative territory.

Crypto did not offer an escape either. Bitcoin fell about 16 per cent for the week amid a record streak of spot bitcoin ETF outflows and a break from its dominant scarcity and institutional-demand narratives. Friday even saw bitcoin drop below $60,000, sinking to the lowest level since October 2024 taking its brutal drawdown to well over 50 per cent from all-time highs in 2024. Nor was the decline in oil a comforting signal. Prices fell on Friday, but global inventories are being rapidly drawn down as the Hormuz crisis escalates and the risk of a price spike remains.

MIND YOUR SURROUNDINGS

Among other concerns, the Japanese yen, which had been hovering near 40-year lows, is now weakening against the dollar at a time when inflationary shocks are spreading. While there is ongoing debate over whether yen carry trades have fully unwound, the risk remains that a major intervention by Japan to support its currency— similar to that seen in August 2024 — could create fresh pressure on global markets.

Going by the signals, it appears fear can spike further as tensions escalated over the weekend in the Middle East conflict. Unless there is any progress on the US-Iran stalemate, investors need to brace for more turbulence in the week ahead. The clearest signal comes from how Nikkei 225 Futures which closed on Friday down by a massive 5.6 per cent. All eyes will be on how Japan and Korea open on Monday, setting the tone for Indian markets. Investors need to heed what Henri Ducard tells Bruce Wayne in Batman Begins — ‘always mind your surroundings’.

Performance and portfolio composition of fund options

Under the NPS All Citizen Model, subscribers can invest in three asset classes through both Tier-I and Tier-II accounts: E (Equity), C (Corporate Debt) and G (Government Securities). NPS earlier offered a fourth asset class, ‘A’ (Alternate Assets), which invested in instruments such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), but it was discontinued in December 2025 due to its limited investment universe. These exposures were integrated into E and C, which can now invest up to 5 per cent of their corpus in such instruments.

Equity (E)

Fund E allows managers to invest in stocks within the Nifty 250 and BSE 250 universes. Managers can also allocate up to 5 per cent of assets to REITs, InvITs, Category I and II Alternative Investment Funds (AIFs), and gold and silver ETFs. Based on 10-year rolling returns, Fund E has delivered an annualised return of 13.5 per cent, which is marginally below the Nifty 100 TRI’s 13.8 per cent.

Corporate Bonds (C)

This fund primarily invests in listed corporate debt issued by public sector enterprises and private companies. The permissible universe includes:

• PSU debt ETFs
• AT1 bonds
• Debt-oriented Category I and II AIFs

While Fund C primarily invests in securities rated AA and above, up to 10 per cent of assets may be allocated to bonds rated between A and AA-. Ten-year rolling return analysis shows Tier-I Fund C generated an average annualised return of 8.6 per cent, outperforming the 7.6 per cent delivered by direct corporate bond mutual funds.

Government Securities (G)

Fund G invests primarily in Central and State government securities with maturities ranging from one to 50 years. The portfolio's modified duration generally ranges between eight and 12 years. Over the long term, Fund G has posted an average return of 8.8 per cent, exceeding the 8.1 per cent return from direct gilt mutual funds.

Asset Allocation Decisions

Asset allocation is considered one of the most critical decisions for NPS subscribers.

• Younger investors: Can benefit from higher exposure to Fund E (capped at 75 per cent under active choice) to maximize long-term growth.
• Investors nearing retirement: May prefer a greater allocation to Fund C and Fund G to reduce portfolio volatility and protect their accumulated savings.
• Passive management: For those who do not wish to manage allocations actively, NPS offers Auto Choice, which automatically adjusts the asset mix based on the subscriber's age.

Poles apart

INDEX OUTLOOK. Nifty Bank indicates potential to rise while Nifty and Sensex have room to fall

By Gurumurthy K (bl. research bureau)

Nifty 50, Sensex and Nifty Bank index fell in the first half last week. Nifty and Sensex remained stable in the second half and closed about 0.7 per cent down each. Nifty Bank index, on the other hand, bounced back well, recovering all the loss. It closed the week higher by 0.47 per cent.

There is a divergence visible on the chart. Nifty has more room to fall. Sensex is very close to a key support. Nifty Bank index is already holding well above its support and has a good chance to rise from current levels itself. Broadly based on the recent price action, it looks like the Nifty Bank index can outperform in the coming weeks.

FPIS SELL

The foreign portfolio investors’ (FPIs’) selling spree continues. The equity segment saw a net outflow of about $4.5 billion last week. We reiterate that the FPIs have to come back strongly into the domestic market in order to boost the Nifty and Sensex.

NIFTY 50 (23,366.70)

Short-term view: Nifty is struggling to rise past 23,500 decisively. That keeps the bias weak. Nifty can fall to 23,000-22,900. If the index manages to bounce from this region, it can rise again towards 23,400-23,500.

But a failure to bounce back and a break below 22,900 can trigger an extended fall to 22,400. However, a fall beyond 22,400 is less likely now in the absence of any new negative trigger.

Key resistance is at 23,850. Nifty has to surpass this hurdle in order to ease the downside pressure. Only then a rise to 24,300-24,700 will come into the picture.

Medium-term view: As mentioned last week, Nifty is now coming down within its broad 22,000-26,500 range. We expect this range to remain intact. As such, the downside can be limited to 22,000 if the index declines below 22,400.

We retain our bullish bias of getting a breakout above 26,500 in the coming months. That can take the Nifty higher to 28,000 and 30,000 in the long term. The bullish view will go wrong only if the Nifty declines below 22,000.

NIFTY BANK (54,496.25)

Short-term view: The recent price action indicates that the Nifty Bank index is getting good buyers in the 53,000-52,800 region.

Supports are at 53,750 and 52,500. As long as the index stays above 52,500, the bias will remain positive. Nifty Bank index can rise to 56,500-56,700 first and then to 58,500-59,000 eventually in the short term. The index will come under pressure for a fall to 50,500 only if it breaks below 52,500. But that looks less likely.

Medium-term view: The broader picture remains positive. Nifty Bank index can rise to 64,000-65,000 on a break above 60,500 – the intermediate resistance. From a long-term perspective, the index has potential to target 68,000-69,000. The bullish view will remain intact as long as the index stays above 50,000. The index has to decline below this support to indicate a trend reversal.

SENSEX (74,243.34)

Short-term view: The near-term picture is still weak. However, there is limited room to fall from here compared to the Nifty. Support is in the 73,000-72,700 region which can limit the downside.

Sensex can bounce from this support zone and rise back to 74,500 initially. An eventual break above 74,500 will then clear the way for a further rise to 76,000-76,500.

Medium-term view: Crucial support is around 71,500-71,000. We expect the Sensex to sustain above this support and keep the 71,000-86,000 range intact. Sensex can make a bullish breakout of this range eventually. Such a break will clear the way for a rally to 90,000 initially and 94,000 eventually over the long term. Sensex has to decline below 71,000 to turn the outlook bearish and fall to 69,000.

NIFTY MIDCAP 150 (22,251.80)

The index is stuck inside the 21,700-23,000 range over the last seven weeks. A breakout on either side of this range will determine the next move. A break below 21,700 can drag the index down to 21,500-21,400 or even 21,000. A fall beyond 21,000 is less likely.

On the other hand, a break above 23,000 can take the index higher to 23,100, a crucial resistance. The broader picture remains positive. As such, we retain our view of seeing a bullish breakout above 23,100 eventually. Such a break will take the Nifty Midcap 150 higher to 26,000-26,500 and 28,000-28,500 in the long term. This bullish view will go wrong only if the index declines below 20,800.

NIFTY SMALLCAP 250 (17,054.50)

The support at 16,600 held very well as expected. The index has risen back recovering all the loss from the low of 16,683.35. That keeps the overall bullish bias intact.

Short-term support is in the 16,400-16,200 region. The index can rise to 17,500 and even 18,000-18,300 in the coming weeks. We reiterate that 18,300 is a crucial resistance. The bias is positive to breach this hurdle eventually. That in turn will clear the way for the Nifty Smallcap 250 index to rally to 22,500-23,000 and even 24,000 in the long term. From a big picture perspective, the index has to decline below 14,000 to turn bearish, which looks unlikely.

---

KEY SUPPORTS

• Nifty 50: 22,900, 22,400
• Sensex: 72,700, 71,500
• Nifty Bank: 53,750, 52,500

Dollar gets a boost

US MARKET OUTLOOK. Equities knocked down on rate hike prospects

By Gurumurthy K (bl. research bureau)

The Dow Jones Industrial Average, S&P 500 and the NASDAQ Composite index witnessed a strong sell-off on Friday. The NASDAQ Composite tumbled over 4 per cent, while the S&P 500 and Dow Jones fell 2.5 per cent and 1.3 per cent respectively on Friday. On the forex front, the dollar index and the Treasury yields got a boost on Friday from the jobs data release. The US added 172,000 jobs to its non-farm payroll in May, which was significantly higher than the market expectation of 80,000. Meanwhile, the unemployment rate remained stable at 4.3 per cent.

These strong job numbers are strengthening the case for a rate hike from the US Federal Reserve this year, which pushed the greenback and yields higher on Friday.

DOW JONES (50,872.08)

The rise to 51,500 happened as expected, but the index has declined sharply from its high of 51,665. Key supports are identified at 50,600 and 50,250. A bounce from either of these supports could take the Dow Jones back toward 51,500 and keep the door open for 52,500. However, 52,500 remains a crucial resistance that could halt the rally and trigger a reversal toward 51,000 or lower. If the index breaks below 50,250 immediately, there is a danger of a further fall to the 49,500-49,200 range, negating the chances of reaching 52,500.

S&P 500 (7,383.73)

Contrary to expectations, the index declined and broke below the support at 7,500. Crucial support is now in the 7,330-7,300 region. The index must sustain above this support and bounce back to reach 7,450-7,500 again. A failure to hold and a break below 7,300 would be bearish, potentially leading to a fall toward 7,150-7,100, which would indicate that a top is in place. Ideally, the index needs to rise past 7,500 to restore its earlier bullishness and make the target of 7,700-7,800 possible.

NASDAQ COMPOSITE (25,709.43)

As cautioned last week, a strong reversal has occurred. While a reversal was expected around 27,500, the index turned down after reaching a high of 27,190. The overall bias is now bearish, with a potential fall to 24,500-24,000. This decline could happen immediately or after a short-lived corrective bounce.

DOLLAR INDEX

The dollar index (100.10) has risen sharply, breaking above the resistance at 99.55, and the outlook remains bullish. The region between 99.55 and 99.45 will now serve as support. A fall below 99.45 would be required to put the index under pressure, but this appears unlikely. In the short term, the dollar index could rise to 100.70-101. From a long-term perspective, 101-101.30 is a very crucial resistance zone; a sustained rise above 101.30 could see the index rallying to 105 this year.

TREASURY YIELD

The 10Yr Treasury Yield (4.53 per cent) has recovered well from last week's low of 4.42 per cent. The important resistance to watch is 4.6 per cent. A decisive break above this level could take the 10Yr Yield higher to 4.8 per cent in the coming weeks.

SpaceX inks three-year $30-billion computing power deal with Google

Alphabet Inc’s Google has agreed to pay Elon Musk’s SpaceX $920 million a month for computing power as part of a cloud services deal that runs through mid-2029, its second such agreement with an AI competitor in a matter of weeks.

Google will pay SpaceX the monthly fee from October this year through June 2029, SpaceX said in the filing Friday. That amounts to about $30 billion through the time of the agreement.

If SpaceX fails to deliver access to Nvidia Corp chips as part of the deal by September 30, Google has the right to terminate the contract, with a one-month grace period, the filing shows. A Google Cloud spokesperson said the deal would help the company meet demand for its AI services. In its most recent earnings report, Alphabet said Google Cloud’s backlog — the measure of contracted work that hasn’t been recorded as revenue yet — nearly doubled from the prior quarter to more than $460 billion.

‘BRIDGE CAPACITY’

“This is a short-term, timely agreement to ensure we have bridge capacity to meet surging customer demand for our agent platform, Gemini Enterprise, which has been even higher than we expected,” the Google Cloud spokesperson said. The agreement involves AI chips, memory chips and other related components. Based on the capacity of Nvidia’s H200 chips, that may represent well over 100 megawatts of computing power — or enough power to energise 75,000 homes at any given moment.

The cloud deal isn’t the only pact that Google and SpaceX have been engaged in talks over. The two companies had been discussing launching the search company’s test products for orbital data centres, a person familiar with the matter said in May.

Under the pact disclosed on Friday, either party also has the right to terminate the arrangement with 90 days’ notice — the same feature as in Anthropic’s deal.

Bloomberg

AI will reshape jobs, but India’s big challenge is preparing workers, boards and classrooms

The Hindu Huddle. Redesigning education, skilling and research for an AI-led future is more critical than the debate over potential job losses, say industry veterans

By Jyoti Banthia and Siddhi Patil

The debate around Artificial Intelligence has largely been framed around a single question: Will it take away jobs? But at The Hindu Huddle’s session on “I, Robot: How AI is reshaping the future of work”, industry veterans argued that India risks missing a far more important conversation — how to redesign education, skilling, research and businesses for an AI-led future.

The panel, moderated by businessline editor Raghuvir Srinivasan, brought together former Cognizant CEO Lakshmi Narayanan, former Nasscom president and NITI Aayog distinguished fellow Debjani Ghosh, and B Santhanam, former CEO - Asia Pacific and India Region & Chairman, Saint-Gobain India.

ONLY A CORRECTION

Ghosh argued that the narrative around AI-driven job losses is often misplaced. “A lot of the displacements till now were due to over-hiring during the pandemic. So it was correction that was happening,” she said, pushing back against the view that AI is already eliminating large numbers of jobs.

That does not mean the risks are insignificant. As AI systems become capable of performing routine and repetitive tasks, entry-level jobs are likely to come under the greatest pressure. “The entry-level will definitely get disrupted. And that is important because that’s millions of people in India and millions of youngsters in India,” Ghosh said.

The challenge, she argued, is to figure out which parts of a job can be automated and which continue to require human judgement. That future, she said, will be defined by what she called the “human sandwich model”. “You need the humans to frame the questions and inputs, AI does the work, and then you need humans again at the end to verify the outcome,” she said, adding that the model will become even more critical as autonomous AI agents become commonplace.

THE GLOBAL AI ECONOMY

The conversation soon moved beyond jobs to India’s place in the global AI economy. While India has emerged as one of the world’s largest digital markets, Ghosh warned that being a consumer of technology is not the same as being a creator of it. “The AI economy is being dominated by two countries, the US and China. For India, we should at least aspire to get 10 per cent of that,” she said.

B Santhanam argued that India can create disproportionate impact through the diffusion of AI across sectors such as agriculture and education. However, he pointed to a critical gap: the lack of technological literacy in corporate India. “In the Nifty 45, there are 230 independent directors. Less than 10 per cent of them have any understanding or knowledge of technology. That’s the state of our boards,” he said.

This lack of engagement at the board level is particularly concerning as technology transforms industries. “Not one company in the managing director’s report had AI mentioned. Not one. That’s shocking,” Santhanam noted.

WEAK LINKS

Lakshmi Narayanan echoed concerns about India’s preparedness, particularly in education and research. Asked whether Indian colleges are producing graduates ready for the AI era, his answer was a cautious "no." He emphasized that India needs to move beyond being comfortable with diffusion to building stronger capabilities in innovation and research that drive technological leadership.

“We are not investing enough in research. The blame goes to the private sector,” Narayanan said. He argued that India needs these stronger capabilities if it hopes to play a meaningful role in shaping the next wave of AI.

Taken together, the panellists painted a picture that was neither utopian nor alarmist. AI will disrupt jobs, particularly at the bottom of the pyramid, but it will also create new opportunities. Whether India emerges as a creator of value or merely a consumer of it will depend on how quickly it can overhaul its classrooms, boardrooms, and research labs.

Monsoon advances up west coast even as signs of El Nino strengthen

WET SPELL. Met Department says conditions favourable for the rains to cover much of the country in 2-3 days

By Vinson Kurian, Thiruvananthapuram

The monsoon advanced further along the west coast and into the interior peninsula on Saturday, covering the whole of Goa and extending across parts of Karnataka, Maharashtra and Andhra Pradesh, while spreading over most of Tamil Nadu and into Mizoram and Manipur in the North-East.

The India Meteorological Department (IMD) said the monsoon’s northern limit passed through Devgad in Maharashtra; Koppal in Karnataka; Anantapuramu in Andhra Pradesh; Chennai; and Aizawl on Saturday afternoon. Conditions remain favourable for the monsoon to advance further into Maharashtra, Karnataka, Andhra Pradesh, and Telangana, the remaining areas of Tamil Nadu, and the rest of the north-eastern States over the next two-three days.

Satellite imagery on Saturday evening showed extensive rain-bearing cloud bands over parts of Karnataka including Hubballi, Belagavi, and Kalaburagi; Kolhapur and Ratnagiri in Maharashtra; Hyderabad, Kakinada, Visakhapatnam and Komarada in Andhra Pradesh; Kalimela and large parts of Odisha; Jagdalpur in Chhattisgarh as well as large parts of West Bengal and the southern parts of north-eastern States.

The IMD indicated that a fresh western disturbance expected around June 11 could dip south into the north-east Arabian Sea off the Konkan-Mumbai coast and emerge with a cyclonic circulation. The system may trigger thunderstorms over Mumbai and adjoining south Gujarat for several days.

EL NINO LOOMS

At the same time, global climate indicators point to a strengthening likelihood of El Nino conditions in the tropical Pacific. Sea-surface temperatures have crossed the critical 0.5°C threshold commonly associated with the onset of El Nino. International agencies estimate an 80-90 per cent chance of the phenomenon developing through June and July and potentially peaking between November and January.

OCEANIC PATTERNS

The equatorial Pacific has transitioned rapidly from neutral conditions towards a clear El Nino pattern. While oceanic signals have strengthened, atmospheric responses typically lag and may take more time to fully develop. Even so, evolving El Nino conditions can begin influencing global weather patterns, including the monsoon.

---

RAIN IMMINENT. Intense clouds cover Maharashtra, Telangana, Andhra Pradesh, Odisha and West Bengal as the monsoon extended across these States on Saturday.