After two sessions of meaningful gains, India’s equity market fell sharply again on Friday due to a spike in crude oil prices amid escalating Middle East tensions. The sharp depreciation of the rupee weighed down by relentless selling by foreign institutional investors (FIIs) also hampered sentiments.
The benchmark BSE Sensex declined by 1,690.23 points (2.25%) to settle at 73,583.22 on Friday, while the Nifty fell 486.85 points (2.09%) to end at 22,819.60. With this, the two indices closed in the red for the fifth consecutive week. The broader market also exhibited pressure with the Nifty Midcap index declining by 2.23% and the Small cap index falling by around 1.74%.
The m-cap of all BSE-listed firms came down from Rs 430.53 lakh crore to Rs 421.62 lakh crore, making investors poorer by around Rs 9 lakh crore. Meanwhile, the rupee hit a record low beyond Rs 94.80 per dollar, shedding 83 paise in one session, its worst fiscal-year drop in over a decade fueled by energy supply fears from the West Asia conflict.
"Indian equities ended lower after a volatile session as rising bond yields coupled with negative cues from western markets and mixed Asian performance kept investors on the edge. Profit booking set in after the recent two-session rally as the rupee fell to an all-time low amid sustained FII selling, while escalating tensions in the Middle East heightened caution among investors ahead of the weekend,” said Vinod Nair, Head of Research, Geojit Investments.
FPIs have withdrawn Rs 123,688 crore from the Indian financial market in March till the 25th. On March 27, FII net sales stood at 4,084.88 crore.
The market faced selling pressure despite US President Donald Trump announcing that Washington will delay attacks on Iran’s energy infrastructure until April 6. However, reports suggest Israel intends to cripple Iran's military-industrial base and there is a possibility of the US sending troops on Iranian soil.
The escalating conflict, now in its fourth week, has crippled shipments via the Strait of Hormuz, a chokepoint funnelling about 20% of global oil supply, 40% of India’s oil import and a third of the liquefied natural gas trade. This has led to a sharp surge in crude oil and gas prices, with Brent crude prices trading above $110 a barrel on Friday.
Higher oil prices 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.
“Investor sentiment remained fragile due to a lack of clarity surrounding geopolitical tensions between the US and Iran, which once again pushed crude oil prices above the $100 mark. In addition, persistent FII outflows and sharp weakness in the rupee further weighed on risk appetite. The volatility index, India VIX, showed no signs of cooling off even during the recent recovery and moved higher, reflecting elevated nervousness and uncertainty in the market,” said Ajit Mishra – SVP, Research, Religare Broking.
India VIX, the market’s volatility gauge, rose by 9% to 26.80, indicating expectations of heightened short-term market volatility.
Tension in West Asia first escalated after US and Israeli forces targeted key Iranian sites on February 28. Iran swiftly responded with a barrage of ballistic missiles aimed at Israeli cities and important Middle East hubs such as Dubai, Kuwait, Qatar, Saudi Arabia and Bahrain. As of now, the US-Israel coalition and Iran continue to rain missiles and drones on each other.