Selling pressure in the Indian equity market is poised to continue over the next few sessions, mirroring a sharp plunge in global equities on Wednesday. The downturn was triggered by escalating tensions in West Asia as the US-Israel coalition and Iran continue to exchange missiles. Indian exchanges were closed on Tuesday on the occasion of Holi.
The fresh selling arises amid reports of the closure of the Strait of Hormuz which carries about 20% of the world's crude. The important trade route has come to a standstill as Iran continues to rain missiles and drones across West Asia. The action by Iran comes after US and Israeli forces targeted key Iranian sites over the weekend, resulting in the death of Supreme Leader Ayatollah Ali Khamenei.
The MSCI Asia Pacific Index dropped 3.3% on Tuesday, extending Monday’s 1.7% fall. Among the leading Asian indices, South Korea’s Kospi plunged 7.2% while Japan’s Nikkei225 fell more than 3%. Taiwan and the Shanghai Composite also fell 1-2% on Tuesday. Early indications by Dow Jones futures and Gifty Nifty also indicated another gap-down opening for the Indian market on Wednesday.
Since the start of the West Asia crisis on Saturday, crude prices have shot up more than 15% and the global benchmark Brent is quoting $82.5 a barrel on Tuesday, up 3.3%, while the Iranian attack on the Qatari LGN facility and the closure of the Strait of Hormuz has led to gas prices surging 55% in Europe.
Market experts had earlier warned that there would be more pain for the Indian market if tensions in West Asia persist for weeks as this could push crude oil prices to the $90-$100 per barrel mark. The Sensex had settled 1,048 points lower at 80,239 on Monday and the Nifty closed 313 points lower at 25,866.
Given that India is a key importer of oil, higher crude prices are a key macro headwind for the country. This may exert pressure on inflation, currency stability and corporate margins, thereby impacting overall equity market sentiment.
Rajesh Palviya, Head of Research, Axis Securities, said that the immediate concern is crude oil. India imports over 80% of its oil requirements, and any prolonged disruption, especially a full closure of the Strait of Hormuz, which carries nearly a fifth of global oil trade, would push Brent prices sharply higher.
“This could widen the current account deficit, put pressure on the rupee, and create near-term inflationary risks, potentially delaying monetary easing. However, India enters this phase from a position of relative macro strength: core inflation remains contained, GST collections are robust, corporate balance sheets are healthier, and government capex continues to support growth momentum,” added Palviya.