Mumbai: Battered by the ongoing conflict in West Asia and its ripple effects on global markets, Indian equities endured their steepest weekly decline in nearly six years, with benchmark indices dropping more than 5% during the week.
A sharp spike in crude oil prices, persistent foreign institutional investor (FII) outflows, and a broader risk-off mood among global investors triggered a broad market sell-off.
The Sensex logged its sharpest weekly fall since the week ended 10 May 2020, when markets had dropped over 6% amid covid-related uncertainty and weak global cues.
On Friday, the Nifty 50 fell 2.06% to 23,151.10, while the Sensex fell 1.93% to end the week at 74,563.92.
Market volatility surged as well. The India VIX, which measures expected market volatility over the next 30 days, climbed from 19.88 to 22.66, signalling heightened nervousness among investors.
The oil effect
A key trigger behind the correction has been the surge in crude oil prices. Brent crude briefly crossed $100 per barrel intraday on Friday, raising concerns about inflationary pressures and the potential impact on India’s external balance.
“India’s dependence on crude is very high, around 85–90%,” said Anand K. Rathi, co-founder of Mira Money. “If crude prices remain elevated, the country’s deficit could widen further and eventually impact GDP growth as well.”
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In an attempt to stabilise prices, the International Energy Agency (IEA) has reportedly agreed to release 400 million barrels of oil from strategic reserves — significantly larger than the 182 million barrels released following Russia’s invasion of Ukraine in 2022.
Elevated oil prices are already threatening to derail the Nifty 50’s FY27 earnings growth projections of 16% and are adding pressure on the rupee against the US dollar, experts said. On Friday, the rupee touched a record low of 92.457 against the US dollar.
The currency weakness has further dampened foreign investor sentiment. As a result, foreign portfolio investors (FPIs) remained consistent sellers during the week, pulling out more than ₹24,000 crore from Indian equities.
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To be sure, India was one of the worst performers globally during the week, but global equities, too, broadly declined as investors reassessed risks amid rising geopolitical tensions.
The Nifty 50’s fall of 5.3% was second only to Indonesia’s Jakarta Composite, which fell 5.9%, but much steeper than Japan’s Nikkei 225 (-3.2%). US markets showed some resilience, with the Dow Jones declining 1.6% and the S&P 500 falling 0.98%. In contrast, some markets held up better, with China’s CSI 300 and the UK’s FTSE 100 posting marginal gains of about 0.2% each.
Still pricey
Despite the sharp sell-off so far, India’s present valuations are out-of-sync with fundamentals, which is contributing to heavier FII outflows, noted Karan Aggarwal, co-founder and chief investment officer at Ametra PMS.
“With Nifty 50 valuations at around 20x (P/E multiple), it’s still a 30-100% premium to other emerging markets,” said Aggarwal. Countries like Japan, South Korea and China are trading at much cheaper valuations at similar or superior earnings growth projections, he added.
This phenomenon is visible at the sectoral level, too. Aggarwal noted that banks and financial services companies had been riding cyclical tailwinds that are now fading, raising the risk of earnings downgrades even as valuations have yet to adjust.
A similar mismatch is visible in automobiles. The sector continues to trade at valuations of 25-35 times earnings, which Aggarwal argues is difficult to justify for a business with operating margins of just 7-8% and high sensitivity to global supply-chain disruptions and macroeconomic cycles.
Reflecting this pressure, the auto index emerged as the worst performer during the week, falling more than 10%. It was followed by Bankex, which declined 7%, and the metal index, down over 6%. In contrast, the power sector bucked the broader trend, gaining about 0.7%.
Favoured sectors
Experts noted that investors are increasingly favouring power and utilities stocks, drawn by the availability of defensive, high-quality names at relatively attractive valuations, a comfort that is largely absent in sectors such as fast-moving consumer goods and pharmaceuticals.
Additionally, the rapid expansion of data centres and AI infrastructure is expected to drive a sharp rise in electricity demand, strengthening the long-term outlook for companies such as Coal India, NTPC, NHPC, Torrent Power and Tata Power, Aggarwal said.