India’s equity market benchmarks – BSE Sensex and NSE Nifty50 – cracked 2% this week as a sharp rise in Brent crude oil price to $100/barrel amid rising geopolitical tension in West Asia hampered investors’ sentiment. A falling rupee, coupled with relentless selling by the foreign institutional investors (FIIs), also weighed on the D-Street.
Iran and the US had earlier agreed on a ceasefire, but hostilities resumed last week as both countries battled over control of the Strait of Hormuz, a vital checkpoint for oil and gas. As per reports, the US forces completed a 13th consecutive wave of strikes on Iran on Friday amid reports that Iranian officials had rejected a US-backed ceasefire proposal carried to Iran by the leader of Iraq.
During the recently concluded trading week (20th July – 24th July), the Sensex fell by 2.68% while the Nifty50 declined by 2.33%. The broader indices - NSE Midcap 100 and NSE Smallcap 100 – fell in the range of 1-2% during the week, highlighting selling pressure across the spectrum. On Friday, the Nifty50 declined 0.43% to settle at 23,767, while the Sensex fell 0.43% to close at 76,059.
"Inflationary fears intensified as the escalation of the West Asia conflict and the blockade at the Red Sea helped crude to cross the $100 per barrel mark. Market expectations for a September rate hike have firmed up with both US and domestic yields edging higher during the week,” said Vinod Nair, Head of Research, Geojit Investments.
Higher oil prices, which jumped about 10% this week, 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. Meanwhile, the rupee, which remained under pressure between Monday and Thursday, traded marginally stronger on Friday, appreciating around 0.07% to 96.55, as a sharp round of profit booking in Brent crude oil corrected prices from nearly $101 to around $96.50 per barrel.
Reports highlighted that the local currency avoided a record low on Friday as the Reserve Bank of India likely intervened to ease pressure. Foreign institutional investors were again net sellers, pulling out more than Rs 4,424 crore from the equity market on Friday.
Nair added that for domestic investors, concerns were further exacerbated by the return of US tariff-related uncertainties, which have cast a shadow over the outlook for export-oriented sectors. “If we are to go by the July PMI, it is signalling towards a moderating business activity and softer economic sentiment. Collectively, these factors dampened domestic investor sentiment, leading to a steady decline through the week, with large-cap stocks bearing the brunt of the selling pressure and underperforming the broader market,” he said.
Ajit Mishra – SVP, Research, Religare Broking said that disappointing quarterly earnings from select large-cap companies and continued weakness in the rupee further weighed on market sentiment, keeping participants cautious.
