MUMBAI: In another bout of heavy selling, India's equity benchmarks tumbled on Wednesday with the benchmark indices—BSE Sensex and NSE Nifty—plunging up to 1.7%.
After the marginal recovery of Tuesday that was fueled by hopes that the West Asia crisis would ease and oil prices soften, equities plunged back into freefall as the US-Israel coalition's war on Iran is showing no signs of de-escalation.
This has left investors uncertain about the potential impact on crude oil prices, global inflation and economic growth. India VIX, the market's volatility gauge, rose by 11% to 21, indicating expectations of heightened short-term market volatility.
At the close, the Sensex fell 1,342.27 points (1.72%) to 76,863.71, while the Nifty dropped 394.75 points (1.63%) to settle at 23,866.85.
In the broader market, the Nifty Midcap index declined 1.2%, while small-cap indices fell 0.3%. Investors lost over Rs 5 lakh crore on Wednesday as the m-cap of all BSE-listed firms came down to Rs 441.54 lakh crore from Rs 446.70 lakh crore in the previous session.
Siddhartha Khemka, Head of Research, Wealth Management, Motilal Oswal Financial Services said that Indian equities are likely to remain volatile driven by developments in the West Asia conflict, sharp movements in crude oil prices and continuous foreign fund outflows.
FII net sales on Wednesday stood at about Rs 6,000 crore. Brent crude prices hit a high of nearly $93 on Wednesday while the rupee traded weaker, slipping 0.13% below the 92.00 mark.
Oil movements remain a key driver for the rupee, with crude on the domestic exchange rising nearly 7% today, which tends to widen India's import bill and weigh on the currency, said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.
Higher oil prices are likely to translate into higher inflation in the coming months along with an impact on economic activities across major oil consumers, including India. This may exert pressure on inflation, currency stability and corporate margins, thereby impacting overall equity market sentiment.
In recent sessions, Brent crude spiked to $119/barrel post the continued closure of the Strait of Hormuz, limited storage facilities in the producer countries and the attacks on oil & gas infrastructure and vessels. The Strait carries 20% of global oil and 40% of India's crude.
He added that the decline on Wednesday was further aggravated by heightened geopolitical tensions in West Asia after the US and Israel launched some of their heaviest strikes on Iran, keeping investors cautious even as the US signalled the possibility of de-escalation. Investor sentiments may remain fragile as geopolitical tensions continue to weigh on global risk appetite, said Khemka.
Auto stocks fell most on Wednesday as the sector continued to face multiple headwinds, including higher raw material costs and persistent supply chain challenges, particularly semiconductor shortages affecting production. The Nifty Auto index declined 3.1%.
Shares of Reliance Industries Ltd fell 1.56% on Wednesday after United States President Donald Trump announced that the Indian oil refining giant will invest in an oil refinery in Brownsville, Texas, via a $300 billion deal.