Stock markets witnessed a sharp rally on Friday, with the and the Nifty gaining over 1%, as easing tensions between the United States (US) and Iran led to a sharp fall in crude oil prices and improved investor confidence.
The BSE jumped 873.88 points, or 1.18%, to 74,706.43 in early trade, while the NSE Nifty50 rose 236.40 points, or 1.02%, to 23,398.
The biggest trigger behind the rally was Brent crude slipping below the key $90-per-barrel mark after of military action against and said that Washington was close to reaching a settlement to end the conflict.
The decline in crude prices brought relief to investors as high oil prices had been one of the biggest concerns for India’s economy during the West Asia conflict.
Brent crude dropped 1.59% to $88.94 per barrel, while WTI crude fell 1.47% to $86.42 per barrel.
India, which imports the majority of its crude oil needs, benefits significantly from lower oil prices. A decline in crude reduces inflationary pressure, improves the current account position and supports the rupee.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the fall in crude is a major positive for India.
“The good news is that Brent is sharply down to $89 with potential for more downside if the agreement becomes real,” he said.
According to him, a fall in oil prices could help India manage its balance of payments concerns, while the rupee may stabilise and strengthen.
Another major factor supporting the market is the possibility of foreign investors covering their short positions.
Vijayakumar said that since foreign institutional investors (FIIs) are heavily short on the market, a fall in crude prices and improving sentiment could trigger short-covering, leading to a sharp market rally.
He added that Bank Nifty has the potential to outperform in this phase, supported by improving domestic conditions.
However, he cautioned that FIIs may return to selling on rallies because the AI-driven technology rally has regained strength in markets such as South Korea and Taiwan, making those markets more attractive.
Global sentiment improved after indications of a reduced fears of a wider conflict in West Asia.
Rajesh Palviya, Head of Research at Axis Direct, said the improved global backdrop triggered a strong rally in US markets, particularly in technology stocks, while Asian markets also moved higher.
He said the sharp fall in Brent crude below $90 has reduced inflation concerns and improved the outlook for risk assets, supporting the positive momentum in Indian equities.
Lower crude prices are especially positive for sectors that use oil-linked products as raw materials.
According to Vijayakumar, investors should watch sectors such as paints, tyres and adhesives, which benefit from lower input costs.
He also said capital goods companies with operations in West Asia could gain significantly if peace is restored in the region.
According to Axis Direct, the Nifty’s technical outlook has improved after the strong rebound.
The index is expected to remain positive as long as it trades above the 23,300-23,350 zone.
A decisive move above 23,500 could push the index towards 23,700 and higher levels. On the downside, 23,100 remains an important support level, and a break below this could trigger fresh selling towards 22,900.
For now, crude oil prices, developments in the US-Iran peace negotiations and foreign investor activity will remain the key triggers for Dalal Street.
(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.)