Indian equity markets ended sharply lower on Wednesday, July 8, as escalating geopolitical tensions in the Middle East and a surge in crude oil prices triggered widespread risk aversion among investors. The sell-off mirrored weakness across global markets, with concerns over the potential economic fallout from the conflict prompting investors to shift away from riskier assets.
The BSE Sensex plunged 1,677 points, or around 2.1 per cent, to close at 76,570.47, while the NSE Nifty 50 dropped 497 points, or 2.04 per cent, to settle at 23,902.64. The sharp decline erased the gains made during the recent recovery and marked the benchmarks' steepest single-day fall in more than two months.
Analysts attribute the sharp sell-off on Wednesday to President Trump's declaration of the interim peace deal with Iran "over" following Iranian attacks on commercial vessels in the Strait of Hormuz.
"... this reignited geopolitical tensions and raising fresh concerns over global energy supplies. The renewed escalation triggered a sharp rebound in crude oil prices, which surged nearly 7%, sending shockwaves across global financial markets," said R Ponmudi, CEO, Enrich Money, a SEBI registered online trading and wealth tech firm.
Ponmudi added that the heightened uncertainty was reflected in the Indian Volatility Index, which surged more than 28%, signalling a sharp increase in market volatility and investor risk aversion.
"The Nifty opened on a weak note and attempted a recovery in early trade, but the rebound quickly lost momentum as fresh developments from the Middle East emerged during the session. Selling pressure intensified through the day, with the benchmark index ending more than 2% lower. The sell-off was broad-based, with all major sectoral indices closing in negative territory," he said.
All sectoral indices ended in negative territory
The selling pressure today was broad-based, with almost all sectoral indices ending in negative territory. Financials, information technology, auto, FMCG, oil and gas, aviation and capital goods stocks were among the worst hit as investors booked profits and cut exposure amid rising global uncertainty. Broader markets also witnessed heavy selling, reflecting weak sentiment across the board.
The spike in oil prices raised concerns about imported inflation, a widening current account deficit and higher input costs for Indian companies, particularly as the country remains heavily dependent on crude oil imports. These worries overshadowed domestic fundamentals and weighed heavily on investor confidence.
Foreign institutional investors remained cautious amid the heightened geopolitical risks, while domestic investors also turned risk-averse as volatility increased. The weakness in global equity markets further dampened sentiment, leading to a broad-based sell-off across sectors.
Market participants will now closely track developments in the Middle East, the trajectory of crude oil prices, foreign investment flows and the upcoming June-quarter corporate earnings for further direction.
Analysts expect volatility to remain elevated in the near term until there is greater clarity on geopolitical developments and their implications for inflation, interest rates and global economic growth.
Meanwhile, the Indian rupee weakened further, with the USD/INR pair climbing towards the 95.5 level as escalating geopolitical tensions boosted demand for the U.S. dollar as a safe-haven asset. A stronger dollar also weighed on precious metals, with gold declining nearly 1.5% and silver falling more than 2.5%, as investors moved to cash and the greenback amid heightened market uncertainty.
