For investors across India, Wednesday was a reminder of how quickly a conflict thousands of kilometres away can find its way into portfolios. The latest US-Iran strikes pushed crude oil prices higher, revived inflation concerns and added to a global bond sell-off, leaving Indian equities under pressure for much of the session.
The market, however, managed to recover from its early lows as buying emerged in select banking, oil and gas and large-cap stocks.
The BSE Sensex ended at 76,570.35, down 373.93 points, or 0.49%, from its previous close of 76,944.28. The index opened at 76,471.32 and moved between a low of 76,135.72 and a high of 76,570.35.
The Nifty 50 closed at 23,914.45, down 141.35 points, or 0.59%. The index opened at 23,858, touched a low of 23,786.80 and recovered to an intraday high of 23,914.45.
The fall came as global markets remained under pressure after the US said it had launched a series of airstrikes against targets in Iran overnight, prompting an Iranian response. The fresh escalation increased concerns about possible disruptions to oil flows from the region.
Brent crude was trading at $95.11 a barrel, up 0.49%, while WTI crude was at $90.51 a barrel, up 0.32%.
Brent had moved to a near-six-week high earlier in the session before paring some of its gains. The rise in crude is a key concern for India, which is a major crude importer. A prolonged increase in oil prices can raise the country’s import bill, put pressure on inflation and hurt growth.
The impact was visible in oil-sensitive stocks. Asian Paints fell 1.61%, while IndiGo declined 1%. Auto stocks were also under pressure, with the Nifty Auto index falling 1.79%.
Vinod Nair, Head of Research, Geojit Investments Limited, said the combination of geopolitical tensions and the global bond sell-off had weighed heavily on investor sentiment.
“The deepening global bond rout, amid escalating West Asia tensions and bets that central banks will need to tighten monetary policy, has gripped investor sentiment in fear,” Nair said.
He noted that the rupee had remained resilient despite the pressure from crude, supported by RBI dollar sales and strong FCNR(B) inflows.
The second major concern for Indian investors was the rise in global bond yields.
Higher crude prices have renewed fears that inflation could remain elevated, potentially limiting the room available to central banks to cut interest rates. Markets have also been worried about the possibility of a near-term US rate hike.
Higher US interest rates and bond yields can make US assets more attractive relative to emerging markets such as India. This can affect global capital flows and put pressure on emerging-market equities.
The bond-market pressure also adds to concerns around equity valuations and liquidity.
Nair said domestic equities saw volatile trade in response to the negative global cues, with mid-cap stocks bearing the brunt of the selling.
“Tracking negative global cues, domestic equities saw volatile trade, with mid-caps bearing the brunt,” he said.
The broader market reflected this pressure. Nifty Midcap 50 declined 0.70%, while Nifty Midcap 100 fell 0.53%. Nifty 500 declined 0.50%, Nifty 100 fell 0.46% and Nifty 200 dropped 0.47%. Nifty Smallcap 100 was comparatively resilient, falling 0.37%.
India VIX, meanwhile, declined 1.34% to 11.34 by the end of the session, suggesting that some of the early volatility had eased.
Sectoral performance remained mixed despite most indices ending lower.
Nifty Auto was the biggest sectoral loser, falling 1.79%, while Nifty Media declined 1.75%. Nifty IT fell 1.25%, with Nifty Financial Services down 0.72%.
Nifty Private Bank declined 0.56%, Nifty FMCG fell 0.47% and Nifty Consumer Durables declined 0.31%. Nifty Healthcare fell 0.24%, while Nifty Metal declined 0.25%.
Nifty Pharma was almost flat, falling just 0.04%.
On the other hand, Nifty Oil & Gas gained 0.33%, while Nifty Realty rose 0.21% and Nifty PSU Bank gained 0.07%.
The relative strength in oil and gas stocks came as investors looked at the possibility of higher realisations for upstream oil and gas companies following the rise in crude prices.
Nair said gains in upstream oil and gas stocks, along with value buying in banking stocks, helped the market recover from its intraday lows.
“Sectorally, while auto and IT stocks dragged markets down, gains in upstream oil & gas on realisation bets amid rising crude, alongside value buying in banking stocks, helped the market recover from its intraday lows,” he said.
Adani Ports was the top Sensex gainer, rising 1.63%. Bajaj Finserv gained 1.02%, Power Grid rose 1%, NTPC increased 0.96% and Titan gained 0.70%.
Reliance Industries rose 0.44%, Trent gained 0.43%, Bajaj Finance increased 0.37% and Sun Pharma rose 0.13%. ITC was marginally higher by 0.02%.
Among the major losers, Asian Paints fell 1.61%, while HDFC Bank and M&M declined 1.56% each. HCL Technologies dropped 1.49%, BEL fell 1.33% and Infosys declined 1.28%.
State Bank of India fell 1.22%, IndiGo declined 1%, Hindustan Unilever lost 0.95% and TCS fell 0.89%. Tech Mahindra, ICICI Bank, Maruti Suzuki and Bharti Airtel also ended lower.
Despite Wednesday’s decline, domestic economic indicators continue to provide some support to Indian equities.
The market is currently caught between strong domestic fundamentals and a difficult global backdrop. Recent GDP data, GST collections, credit growth and automobile numbers have pointed to continued strength in the Indian economy, while earnings prospects have also been improving.
The resilience of the rupee was another positive. Nair noted that the currency remained relatively stable despite the crude-led pressure, helped by RBI intervention and FCNR(B) inflows.
For India, the immediate risk from higher crude is therefore more about a sustained rise rather than a one-day spike. A prolonged period of elevated oil prices would have wider implications for inflation, the import bill, corporate costs and economic growth.
The immediate focus for investors will remain on the trajectory of crude oil prices and the US bond market.
The escalation in the US-Iran conflict has added a fresh geopolitical risk premium to oil, while higher global yields have raised concerns about monetary policy and liquidity. At the same time, India’s domestic growth indicators and selective buying in large-cap stocks are providing a counterweight.
Wednesday’s session therefore ended with the Indian market caught between external headwinds and domestic support. As Nair put it, the global bond rout and West Asia tensions have made investors cautious, but the recovery from the day’s lows shows that domestic buyers are still willing to step in selectively.
(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.)