Stock market began Wednesday on the back foot, but the weakness was not limited to the headline indices. From airlines and tyre makers to auto, IT and real estate stocks, as a fresh escalation in the US-Iran conflict sent crude oil prices higher and brought inflation and interest-rate worries back to the forefront.
By 10:05 am, the BSE was down 561.24 points, or 0.73%, at 76,383.04. The index had opened at 76,471.32 against Tuesday’s close of 76,944.28. It touched an early high of 76,521.67 and a low of 76,135.72.
The Nifty 50 was down 200.55 points, or 0.83%, at 23,855.25. It opened at 23,858, rose to an early high of 23,882.95 and slipped to a low of 23,786.80.
The broader market was also under pressure. Nifty 100 fell 0.84%, Nifty 200 declined 0.87% and Nifty 500 dropped 0.85%. Nifty Midcap 50 was down 1.07%, while Nifty Midcap 100 fell 0.97%. Nifty Smallcap 100 declined 0.66%. India VIX, meanwhile, rose 3.80% to 11.93, signalling higher volatility.
Here are the three key reasons why the Indian stock market is falling today:
The immediate trigger for the sell-off is the fresh escalation in the Middle East after the US and Iran exchanged strikes overnight.
The US said it had launched a , prompting an Iranian response and raising concerns about a further escalation of the conflict. For financial markets, the key worry is what this could mean for oil supplies and shipping routes in the region.
Brent crude was trading at $95.42 a barrel, up 0.81%, while WTI crude was at $90.68 a barrel, up 0.51%. Brent had earlier touched a near-six-week high before paring some of its gains.
For India, higher oil prices are a particularly important concern because the country imports a large share of its crude requirements. A prolonged rise in crude can increase India’s import bill, put pressure on the current account and add to inflationary pressures.
The impact was already visible in oil-sensitive stocks. Asian Paints fell 1.73%, while IndiGo was down 2.63%. Tyre makers and oil marketing companies were also under pressure on concerns over higher input and fuel costs.
Oil marketing companies BPCL, HPCL and Indian Oil, tyre makers such as MRF, JK Tyre and CEAT, paint maker Asian Paints and airline operator IndiGo declined in trade as crude prices rose.
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the and the rise in Brent crude were negative for market sentiment.
“The escalation of the U.S.-Iran conflict and the consequent 5% spurt in Brent crude overnight to $96 is a sentiment negative,” Vijayakumar said.
However, he added that higher crude prices alone may not pose a major threat to India at present because the country’s current account deficit is low and foreign exchange reserves are strong.
“However, this is not a big threat since our CAD is running at only 0.5% and forex reserves are ample at $730 billion,” he said.
The second major concern is the rise in global bond yields following the jump in oil prices.
Higher crude prices can make the inflation fight harder. That has raised worries that the US Federal Reserve may have less room to cut interest rates and could even face pressure to keep rates higher for longer.
Global bond yields moved higher as markets assessed the possibility of a near-term US rate hike. This matters for India because higher US interest rates and bond yields can make US assets more attractive to global investors.
When the return available on relatively safer US government bonds rises, global investors may reduce exposure to riskier emerging markets such as India. That can put pressure on foreign portfolio flows and Indian equities.
Vijayakumar identified this as the bigger macro risk for markets.
“The big threat is the rising bond yields in the U.S. The macro construct in the US indicates further hardening of the bond yields. If the 10-year yield touches 5% that has the potential to trigger a big correction in equity markets globally,” he said.
He added that the US 10-year yield is therefore the key indicator investors need to watch.
“Therefore, this is the macro indicator to watch closely,” Vijayakumar said.
The combination of higher crude prices and rising US yields is particularly uncomfortable for emerging markets because it can simultaneously increase inflation concerns and reduce the relative attractiveness of emerging-market assets.
The third reason is the breadth of the decline. This is not a case of just the Sensex and Nifty being dragged lower by a handful of heavyweight stocks. Selling has spread across several sectors and market-cap segments.
Nifty Auto was the biggest sectoral loser in the 10:05 am snapshot, falling 2.15%. Nifty Realty declined 1.80%, Nifty IT fell 1.05%, Nifty Financial Services declined 0.93% and Nifty FMCG dropped 0.92%.
Nifty Media fell 0.87%, Nifty Metal declined 0.53%, Nifty Pharma fell 0.42%, Nifty Private Bank declined 0.67% and Nifty Healthcare was down 0.48%. Nifty Consumer Durables declined 0.99%, while Nifty Financial Services Ex-Bank fell 1.13%.
Nifty MidSmall Healthcare fell 0.51%, Nifty MidSmall Financial Services declined 0.87% and Nifty MidSmall IT & Telecom dropped 0.63%. Nifty Chemicals fell 0.64%, while Nifty 500 Healthcare declined 0.45%.
Nifty Oil & Gas was comparatively resilient, falling 0.18%.
The one notable exception among the sectoral indices was Nifty PSU Bank, which was up 0.18%.
The weakness was visible among several major Sensex stocks.
IndiGo was the biggest loser in the stock list, falling 2.63%. Asian Paints declined 1.73%, HDFC Bank fell 1.31%, BEL dropped 1.30%, Bajaj Finance declined 1.29% and Cement fell 1.25%.
Eternal was down 1.17%, M&M fell 1.16%, HCL Technologies declined 1.14%, Hindustan Unilever fell 1%, Bajaj Finserv declined 0.90% and Titan dropped 0.87%.
IT stocks were also under pressure, with Infosys down 0.75%, Tech Mahindra falling 0.75% and TCS declining 0.15%.
Among the few stocks in the green, Adani Ports gained 1.25%, Power Grid rose 0.25%, Sun Pharma increased 0.15% and NTPC was marginally higher by 0.02%.
Coal India was a notable outperformer outside the Sensex pack, gaining 3.6% after the state-owned company said its total coal supplies increased 5.5% in August.
Despite the sharp opening weakness, the market is not facing only negative domestic factors. India’s recent economic data remains a source of support.
Vijayakumar said the market is caught between strong domestic fundamentals and equally strong external risks.
“The market is delicately poised between domestic tailwinds and external headwinds,” he said.
He pointed to India’s impressive Q1 GDP numbers, GST collections, credit growth and automobile numbers, along with improving earnings prospects, as positives for the market.
“The domestic tailwinds from impressive Q1 GDP numbers, excellent high frequency data from GST collections, credit growth and automobile numbers and improving prospects for earnings growth are big positives for the market,” Vijayakumar said.
However, he said external headwinds are currently strong enough to keep investors cautious.
“The near-term market trend will depend on which of these forces – the tailwinds or headwinds – will emerge stronger,” he said.
Wednesday’s fall is therefore being driven by three linked concerns: the US-Iran escalation and higher crude prices, rising US bond yields and rate-hike worries, and broad-based selling across sectors and market segments.
For India, the immediate focus will remain on crude oil. If Brent stays near $95-$96 a barrel or moves higher, investors are likely to keep assessing the impact on inflation, the rupee, corporate costs and India’s import bill.
At the same time, the US 10-year bond yield has emerged as an important global market signal. As Vijayakumar pointed out, a move towards 5% could pose a much bigger risk to global equities.
For now, the market is being pulled in two directions: strong domestic economic fundamentals on one side and rising geopolitical and global macro risks on the other.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)