The stock market rout continues with the benchmark indices—BSE Sensex and NSE Nifty—falling more than 1% each again on Thursday as the ongoing crisis in West Asia is showing no signs of de-escalation. This has led to a sharp increase in crude oil prices and stoked fears of inflation, especially among nations that rely on imported oil to meet energy demand.
In the past nine trading sessions, the Sensex has declined by more than 6,214 points while Nifty has shed 1,857 points. This relentless selling has driven the indices to fresh 10-11 month lows. The Sensex declined 1.08% to settle at 76,034.42 on Thursday, while the Nifty 50 fell 0.95% to close at 23,639.15.
Most of the sectoral indices, especially OMCs, automobile and chemicals, have been under pressure since tensions surged in West Asia after US and Israeli forces targeted key Iranian sites earlier this month, resulting in the death of Supreme Leader Ayatollah Ali Khamenei. As of now, the two sides continue to rain missiles and drones on each other.
Brent crude prices have again surpassed the $100/barrel mark on Thursday following the continued closure of the Strait of Hormuz, limited storage facilities in the producer countries and the attacks on oil & gas infrastructure and vessels.
India is also grappling with the shortage of liquefied petroleum gas (LPG) and liquefied natural gas (LNG) which has started to affect consumers and businesses across the country.
Higher oil prices are likely to translate into higher inflation in the coming months. This may exert pressure on currency stability and corporate margins, thereby impacting overall equity market sentiment.
Vinod Nair, Head of Research, Geojit Investments, said that geopolitical tensions in the Middle East continue to dampen global risk appetite, as fresh attacks on oil-shipping vessels have pushed crude prices closer to $100 per barrel, intensifying concerns over inflation and gas supply constraints.
"The market is witnessing broad-based consolidation, although selective buying has emerged in renewables and utility stocks. In the near term, sustained risk-off sentiment and ongoing FII outflows are likely to keep both equities and the INR under pressure," added Nair.
The rupee traded weaker, slipping 0.27% below the 92.25 mark on Thursday, as the dollar index hovered above $99 and volatile crude prices kept pressure on the currency. Gold traded slightly positive with gains of 0.20%, quoting near Rs 162,100 on MCX, while CME gold held around $5,185 with similar gains.
Ross Maxwell, Global Strategy Operations Lead, VT Markets said that even with a large release of strategic reserves coordinated by the IEA, the market reaction has been driven more by perceived supply risk than by actual shortages, pushing Brent Crude prices above $100 per barrel again.
"Over the next two to four months, oil prices will likely depend on whether we see escalation or de-escalation. A de-escalation with secure shipping routes would likely bring Brent back toward pre-conflict prices as supply shocks are mitigated, while intermittent disruptions or shipping insurance spikes could keep prices in the $100–115 range," added Maxwell.
For global investors, the concern is that a global energy crisis with increased energy prices creates inflationary issues like it did after the start of the Russia-Ukraine war. This could force central banks to maintain tighter monetary policy. This would put pressure on equity markets, said Maxwell.