India’s equity market has come under severe bearish grip again with benchmark indices, BSE Sensex and NSE Nifty, shedding most of the recovery they made in the first three weeks of April on the hopes that the West Asia crisis is coming to an end. As foreign institutional investors (FIIs) continue to dump Indian shares and the West Asia conflict escalates again, leading to higher crude oil prices, the D-Street has started to feel the heat again.
Indian markets witnessed a sharp sell-off on Monday (June 8) amid weakness in global markets, led by investors booking profits in AI and semiconductor stocks. At close, the Nifty 50 declined 243.70 points or 1.04% to settle at 23,123, while the Sensex fell 719.08 points or 0.97% to close at 73,524.26. The broader markets fell more compared to benchmark indices, with the Nifty Midcap 100 and Smallcap 100 declining by 1.40% and 1.92%, respectively.
In the last one month, the Sensex and Nifty have fallen about 5% each and year to date the decline is in the range of 12-14% each, making India one of the worst-performing major markets globally. In terms of valuation (m-cap of BSE-listed firms), India has slipped below Taiwan and Korea to seventh position in the last few weeks.
“Indian equities are expected to remain volatile in the near term, with sentiment weighed down by escalating geopolitical tensions in West Asia,” said Siddhartha Khemka - Head of Research, Wealth Management, Motilal Oswal Financial Services. He added that Iran's missile strikes on Israel in retaliation to Israel's actions in Lebanon have pushed Brent crude prices nearly 3% higher to around USD 96/bbl, raising concerns around inflation and external sector pressures.
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. Meanwhile, the Indian rupee gave up most of its previous session gains, depreciating by 77 paise to settle at 95.71 on Monday.
Khemka added that commodity-led inflation, weaker monsoon expectations and sustained FII outflows are likely to keep the near-term backdrop challenging. Globally, profit booking in AI and semiconductor stocks, along with liquidity-driven selling ahead of SpaceX's mega IPO, further added to global risk-off sentiment. Additionally, stronger-than-expected U.S. jobs data has reignited expectations of further rate hikes by the FOMC, dampening global risk appetite and lending further support to the greenback.
Foreign investors pulled out nearly Rs 43,000 crore from Indian equities in the first week of June, amid a global rotation toward technology and AI-linked opportunities overseas and continued weakness in the rupee. The total FII outflow in 2026, so far, has reached Rs 283,662 crores, an unprecedented figure.
V K Vijayakumar, Chief Investment Strategist, Geojit Investments said that if FIIs are to invest in India the AI trade which has been the principal driver of FII outflows away from India should change. “There are early signs of this happening. The crash in Nasdaq by about 5% on June 5th is an indication that the AI bubble may burst. If the AI trade cools down and reverse that can trigger reversal of FII outflows. Therefore, watch out this trend,” he added.
