India’s equity market registered a steep decline for the third straight session on Friday as heightened US–Iran tensions, a sharp rise in crude oil prices and a rout in IT stocks after tepid Q4 results hampered sentiments. With additional pressure coming from relentless foreign institutional investor (FII) selling and a weak rupee, the benchmarks - BSE Sensex and NSE Nifty50 – have plummeted by more than 3% in the past three sessions.
The BSE Sensex has shed more than 2,600 points during this period while the Nifty50 has declined about 680 points. The plunge has erased much of the recovery the market had built from the lows of March 30, when the West Asia crisis was in full swing. Before the current selling spree, benchmarks had gained about 10% in April on the back of de‑escalation, ceasefire hopes, peace talks and a softer crude‑oil trajectory.
On Friday, the Sensex fell by 1000 points, or 1.29%, to settle at 76,664, while the Nifty declined by 275 points, or 1.14%, to close at 23,898.
The fresh nervousness in the market comes as tensions between the United States and Iran have emerged over the control of the Strait of Hormuz. In the backdrop of stalled peace talks, both parties have captured commercial vessels and disrupted the flow in the important maritime route. This has pushed Brent crude oil prices to around $107 per barrel.
"The Indian equity market extended its profit-booking streak, pressured by heightening geopolitical tensions in West Asia, a sharp rally in crude oil prices, and a weakening rupee,” said Vinod Nair, Head of Research, Geojit Investments. Higher oil prices for an import-dependent nation such as India are likely to translate into higher inflation in the coming months, exerting pressure on currency stability and corporate margins, thereby impacting overall equity market sentiment.
IT stocks led the decline following disappointing quarterly earnings, while selling pressure was broad-based across sectors. The Nifty IT index fell more than 5% after leading tech firm results and management commentary sparked a fresh sell-off in the sector. HCL Tech shares fell nearly 6% on Friday and falling 11% on Wednesday. Shares of TCS crashed nearly 5% while Infosys fell nearly 7% on Friday.
Siddhartha Khemka, head of Rresearch, wealth management, Motilal Oswal Financial Services, said the ongoing uncertainty around US-Iran negotiations, coupled with disruptions in the Strait of Hormuz, is keeping crude oil prices elevated and risk appetite subdued. The lack of meaningful progress on the geopolitical front is expected to keep pressure on energy prices, rupee and equity markets, he added. In the IT sector, Khemka said that concerns around delayed demand recovery, weak discretionary spending and continued margin pressure have led to a softer outlook for the sector, keeping sentiment weak.
Meanwhile, the rupee fell to 94.22 as rising crude prices weighed on emerging market currencies. Market volatility remained high, with India VIX rising up to 6% to 19.71, indicating cautious positioning among investors.
“Sentiment was further dented by global rating agencies downgrading India on inflation and macro concerns, along with the RBI flagging early signs of slowing growth. While valuations have corrected, investors are expected to closely monitor the ongoing results for any potential earnings downgrade, given the wobbling geopolitical uncertainties,” said Nair of Geojit.