The week began with Trump saying the US is in the "final stages" of negotiations. Markets rallied. Oil fell 5%. By Thursday, Iran's supreme leader had issued a directive that enriched uranium must stay within the country — a non-starter for the US under any nonproliferation framework. Oil bounced back. The cycle repeated for the third consecutive week.

According to Axios, the US and Iran are working on a one-page memorandum of understanding — a framework for ending the war, with nuclear specifics deferred to a later stage. Iran's Foreign Ministry confirmed it received the latest US position and is reviewing it. Secretary of State Marco Rubio described discussions as showing "tentative signs of progress." Pakistan is mediating.

Goldman Sachs revised its forecast this week: Brent crude is now expected to stay elevated and average around $90 per barrel by late 2026, up from its previous $80 estimate, as Gulf export disruptions prove more persistent than assumed. Global oil inventories are drawing at a record pace of 11–12 million barrels per day. Even in a deal scenario, Goldman estimates the normalisation of Gulf exports won't begin before end-June at the earliest.

The stakes remain enormous. Both Brent and WTI are up approximately 45% since the Iran war began. A sustained deal that reopens the Strait of Hormuz fully could drop Brent toward $80 — delivering the equivalent of a global stimulus injection. Every day without a deal is another day of inflation, dollar strength, EM currency weakness, and pressure on central banks that would prefer to cut.

The week's final session was driven by easing Treasury yields and continued optimism that a US-Iran deal remains possible — even if not imminent. The 10-year Treasury yield fell to 4.558% on Friday, and the 30-year declined to 5.064%, giving rate-sensitive sectors their first meaningful relief in a week. Health Care (+1.19%) and Technology (+1.02%) led the broad advance.

The Russell 2000 small-cap index gained 0.91% to 2,869 — approaching a retest of its all-time high, and significantly outperforming large caps. This is an important signal: small caps have historically led market cycles when rate expectations peak and begin to turn. The Russell's outperformance suggests some investors are beginning to position for a rate plateau.

However, the macro backdrop makes this rally structurally vulnerable. Money markets are fully pricing in at least one Fed rate hike in 2026 — the first time since the 2022–2023 cycle. The S&P 500 trades at 20.9× forward earnings, above both its 5-year average of 19.9× and its 10-year average of 18.9×. Oil remains above $100. The new Fed chair has yet to hold his first press conference. The SpaceX and OpenAI IPOs will absorb potentially $100+ billion in capital from institutional investors, creating headwinds for existing equity holdings.

The bull case: AI infrastructure spending continues to grow, sovereign AI programs are expanding globally, the Iran deal eventually gets done, and Warsh holds rates steady. That scenario extends the rally. The bear case: oil stays above $110, Warsh signals a hike in June, OpenAI's IPO disappoints, and valuations at 20.9× prove impossible to sustain. Both scenarios are genuinely plausible — which is why this is the most uncertain record high in recent memory.

India's equity markets are experiencing the most severe sustained foreign capital exodus in their modern history. FPI outflows have crossed $22.2 billion in under three months — surpassing the record annual total for all of 2025. This is not a short-term blip; it is a structural rotation driven by five simultaneous forces.

First, crude oil. India imports over 85% of its oil. At $107 Brent, India's import bill is running at a pace that widens the current account deficit to an estimated $40–50 billion above recent trend years. Every dollar of that deficit needs to be financed by capital inflows — and those inflows are leaving, not arriving.

Second, the rupee. The rupee has shed over 10% of its value in the past 12 months. The RBI cut its repo rate to 5.25% in December 2025, narrowing India's interest rate advantage over the US — reducing the incentive for global capital to park funds here. Emkay Global notes the RBI has already factored rupee depreciation near ₹94 per dollar into its official projections. The consensus view is that the rupee stabilises at ₹92–₹95; a collapse to ₹100 is not the base case but is no longer inconceivable.

Third, the US AI opportunity. Global institutional investors are reallocating capital toward US AI infrastructure — Nvidia suppliers, data center operators, US cloud companies. India, despite its IT sector strength, is not the primary beneficiary of this capital cycle. The US is simply more compelling right now for growth-at-scale investors.

Fourth, tariffs. US tariffs of 26–50% on Indian exports including gems, jewellery, electronics, and auto parts have reduced the dollar inflows that normally support the rupee and Indian corporate revenues. Even with the Supreme Court striking down the broader tariff package, sector-specific levies remain.

Fifth, domestic capex hesitation. India's chief economic advisor criticised private firms this month for failing to step up capital expenditure despite strong profitability. Instead, Indian corporates — led by Reliance — are deploying capital in the US. Reliance is investing to build what Trump has called "the first refinery in 50 years" in America. Capital that should be anchoring India's next growth cycle is flowing to the US instead.

Emkay Global's latest strategy report, published on May 15, contains a warning Indian markets are still under-pricing: "A rate hike in the upcoming MPC meeting appears increasingly inevitable, with even a possibility of an inter-meeting action if oil prices remain elevated."

The math is straightforward. Oil at $100–110 per barrel is not something India can absorb without policy response. The government has already raised fuel prices and import duties on gold and silver. But the rupee continues to weaken as FPIs exit, which raises the cost of oil imports further (since oil is priced in dollars). A weakening rupee → higher oil cost in rupees → higher inflation → pressure on RBI to raise rates → higher borrowing costs → slower growth. This is the vicious cycle India is now in.

A ₹10-per-litre fuel price hike would push CPI inflation to approximately 4.4% by June 2026 — above the RBI's upper tolerance band of 4%. Emkay notes, however, that a full pass-through in one shot would trigger a "consumption shock too severe" to risk. Phased hikes are more likely — which gives some breathing room if the Iran situation resolves and oil falls.

The RBI's tools are imperfect in this environment. A rate hike would theoretically attract foreign capital to Indian debt — but Emkay warns equity outflows could overwhelm any debt inflows, and tightening could be perceived by markets as "policy panic." The RBI may instead opt for targeted rupee intervention — selling dollars from its forex reserves to defend the exchange rate — while keeping the repo rate on hold one more meeting.

India's equity markets are "not priced for these growth inhibitors," Emkay says, with the Nifty at 19.1× FY27 P/E. In a prolonged energy crisis scenario — oil stays at $100+ beyond Q3 2026 — Emkay projects the Nifty could fall to 21,000. That represents approximately 8–10% downside from current levels.

India's BSE Sensex closed at 75,415 on Friday — up approximately 0.3% on the day but only 0.2% for the full week. The contrast with the US Dow's record close at 50,579 is stark. Indian markets are being driven by entirely different forces: geopolitical caution, FPI outflows, oil concerns, and rupee pressure.

Banking and financials were the standout performers. Axis Bank (+2.5%), ICICI Bank (+1.8%), and HDFC Bank (+1.0%) all rose on Friday as investors selectively rotated into rate-resilient quality names. Consumer discretionary and FMCG also provided support: Asian Paints rose 1.6% and Hindustan Unilever added 1.1%, reflecting the view that domestic consumption — while stressed — has not broken down. Among smaller stocks, Laxmi Dental surged 20%, Le Travenues rose 4.7%, and RCF gained 5.9%.

Sun Pharma was the week's biggest index loser, slipping 2.4% after quarterly results disappointed on operational metrics. The pharma sector broadly has been navigating US FDA pressure, pricing headwinds in the US generics market, and currency-related revenue uncertainty.

The most structurally important story in Indian corporate news this week, however, was not a market move — it was a capital allocation signal. Reliance Industries is investing in the United States to build what President Trump has called "the first refinery in 50 years" in America. India's largest company deploying its excess capital abroad rather than at home is exactly the behaviour India's chief economic advisor publicly criticised this month. When India's most profitable conglomerates find the US more attractive for investment than their home market, that is a signal the domestic investment climate needs addressing — urgently.