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.The Nifty 50 and Sensex ended the week with gains of 1% and 0.90%, respectively, snapping a two-week losing streak.Global cues also remained favourable. In May, the Nasdaq 100 surged 9.04%, the S&P 500 climbed 6.15%, and the Dow rose 3.94%. In Asia, Taiwan and South Korea led emerging market gains. Meanwhile, gold prices dipped 0.74% amid rising risk appetite.With the Nifty 50 marking its third consecutive monthly gain and supportive policy signals continuing, investors are now eyeing upcoming macro data and earnings results to gauge the sustainability of the rally.