With Brent crude oil prices climbing back above $86 per barrel in the backdrop of growing tension in West Asia, India’s equity market opened on a weak note on Tuesday and extended losses throughout the session. At close, the benchmark NSE Nifty 50 declined 0.66% to settle at 24,052, while the BSE Sensex ended 561 points lower at 77,054.
The broader market also came under selling pressure with the Nifty Midcap 100 index falling 0.44% and the Nifty Smallcap 100 index declining 1.01%. The Rupee also fell sharply, declining around 0.55% to 96.20, as a fresh 4% surge in Brent crude prices increased pressure on the domestic currency.
Siddhartha Khemka - Head of Research, Wealth Management, Motilal Oswal Financial Services said that rising crude oil prices, fresh Foreign Institutional Investor (FII) outflows and weak global markets weighed on sentiment, while the weekly derivatives expiry added to market volatility. FIIs pulled out (net sales) Rs 3,396 crore on Monday.
Oil prices surged more than 9% on Monday and another 4-5% on Tuesday following reports that the US plans to impose a naval blockade covering Iran's coastline, ports and oil terminals. The move also includes a proposed 20% charge on cargo transiting the Strait of Hormuz, reigniting concerns over global energy shipments and supply disruptions. Brent crude prices hit a high of $87.53 per barrel on Tuesday.
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.
Khemka added that Indian equities are expected to trade sideways with some volatility expected in the near term amid escalating geopolitical tensions in West Asia, Brent crude prices remaining above $85/bbl and weak global cues.
Vinod Nair, Head of Research, Geojit Investments said that the pain in the equity market was compounded by the rupee breaching the 96-per-dollar mark, fanning concerns over imported inflation and squeezing input costs across industries.
“The fallout was most visible in inflation- and cost-sensitive pockets; auto, financials, and realty led the market lower, while pharma bucked the trend, benefiting as investors sought shelter in defensives amid the volatility. Sustained foreign fund outflows added to the cautious mood, keeping sentiment on the back foot. Looking ahead, all eyes are now on the US Fed Chair, whose upcoming remarks could set the tone for global rate expectations. Meanwhile, the Q1 earnings season rolls on a positive note but a rapid increase in geopolitical risk has dampened the sentiment,” he added.
Sarvam Goel, Founder, Pocketful, said that the question now being asked is whether $100/barrel (for Brent crude) is back in play.
“That single question explains why Realty fell for a second straight session, why PSU banks moved lower, and why the broader market shed gains it took two weeks to build…For investors, this is no longer a pause after a rally. Crude at $85 with diplomatic tensions involving India directly is a different risk profile from last week. Tread carefully from here,” added Goel.
