Benchmark indices Sensex and Nifty tumbled sharply after opening on Wednesday, tracking weak global cues and rising concerns over the economic fallout of the escalating Iran-US conflict.
The Sensex was down 1,687.58 points, or 2.10%, at 78,551.27 at 9:24 am, while the Nifty fell 487.90 points to 24,377.80.
Investors turned cautious as crude oil prices surged and fears grew that a prolonged war in West Asia could disrupt global energy supplies and stoke inflation.
India, which imports nearly 85% of its crude oil requirements, remains particularly vulnerable to any sustained spike in oil prices. Higher crude typically widens the country’s trade deficit, pressures the rupee and fuels inflation, all of which can weigh on economic growth and corporate earnings.
According to V. K. Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, markets are entering a phase of heightened uncertainty as the conflict intensifies.
“With the war escalating and crude rising, markets are going into a period of heightened uncertainty. Nobody knows how long this conflict will go on and what will be the extent of the havoc it could wreak,” he said.
From India’s perspective, he noted, the key concern is the impact of higher oil prices on inflation and growth.
“India relies on imports for around 85% of its oil requirements. The real concern is the potential inflation and its consequences for economic growth. From the market perspective, the impact of a potentially widening trade deficit, a depreciating currency, higher inflation and perhaps lower growth is the real issue,” Vijayakumar said.
He added that these risks could eventually affect corporate earnings if the conflict drags on.
“This fear will materialise only if the war lingers for long. If it ends in, say, three to four weeks, things will be back to normal,” he said.
Despite the volatility, Vijayakumar cautioned investors against reacting impulsively.
“Experience tells us that panicking and getting out of the market during uncertain times like these is not the right thing to do. Markets have an uncanny ability to surprise and climb all walls of worries. So remain invested and wait patiently.”
He added that investors with a higher risk appetite and a long investment horizon could use the correction as an opportunity to accumulate quality stocks.
“Banking, pharmaceuticals, automobiles and defence themes will offer long-term buying opportunities,” he said.