Dalal Street witnessed heavy selling on Wednesday, with the Sensex falling more than 600 points and the Nifty slipping below the 24,250 mark, as renewed geopolitical tensions, rising crude oil prices and weakness in global technology stocks weighed on investor sentiment.
The latest decline comes after Indian markets had rallied in recent weeks, supported by easing oil prices, improving foreign investor inflows and expectations of strong June-quarter earnings. However, fresh developments in the Middle East and weakness in global markets prompted investors to adopt a more cautious stance.
By 1:56 pm, selling pressure had intensified, with the BSE Sensex plunging 1,122.46 points, or 1.44 per cent, to 77,058.26, while the NSE Nifty50 dropped 342.60 points, or 1.40 per cent, to 24,056.10. Escalating US-Iran tensions, higher crude oil prices and weak global cues triggered broad-based risk aversion across equity markets.
Renewed US-Iran tensions push crude oil higher
The primary trigger for the market decline was renewed military escalation between the United States and Iran.
Brent crude rose more than 2 per cent to around $76 a barrel after the US carried out fresh strikes on Iran, reviving concerns over potential supply disruptions in the Middle East.
For India, which imports nearly 85 per cent of its crude oil requirements, rising oil prices pose a significant economic challenge.
Higher crude prices increase the country's import bill, widen the current account deficit, add to inflationary pressures and raise input costs for businesses, potentially affecting corporate earnings.
As a result, sectors heavily dependent on fuel costs and domestic consumption came under pressure soon after trading began.
Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the spike in oil prices had once again introduced uncertainty into the market.
"With the renewed US-Iran tensions and the consequent spike in Brent crude to $76, the market is again back to uncertain territory. How long this would last and what would be its consequences are now in the realm of uncertainty," he said.
Weakness in global technology stocks weighs on sentiment
Apart from geopolitical concerns, losses in global technology stocks also dampened investor confidence.
Overnight, all three major US stock indices closed lower.
The Nasdaq Composite, heavily weighted towards technology companies, fell 1.16 per cent, making it the worst-performing major US index. The S&P 500 declined 0.45 per cent, while the Dow Jones Industrial Average slipped 0.25 per cent.
The decline was driven by another round of selling in semiconductor stocks, raising fresh concerns about the sustainability of the artificial intelligence-led market rally.
Shares of Micron Technology and several other US chipmakers recorded sharp losses, dragging the Nasdaq lower.
The negative sentiment spread to Asian markets on Wednesday.
Samsung earnings fail to lift markets
Selling pressure intensified after Samsung Electronics reported another exceptionally strong quarter.
The company projected a 19-fold increase in April-June operating profit to 89.4 trillion won, marking its third consecutive quarter of record earnings.
Despite the strong results, investors chose to book profits.
Samsung shares declined, while rival SK Hynix also came under pressure as investors questioned whether the rapid earnings growth driven by artificial intelligence could be sustained.
Daisuke Hashizume, Senior Strategist at Daiwa Securities, said investors remained cautious about AI-related stocks.
"Investors cannot fully regain their confidence in AI shares. Samsung Electronics flagged a strong outlook but the market was not convinced that prices will keep rising," he told Reuters.
DeepSeek report adds to AI concerns
Investor caution was further reinforced by a Reuters report stating that Chinese AI startup DeepSeek is developing its own artificial intelligence chip.
If successful, the move could reduce the company's reliance on major global semiconductor manufacturers for training and operating AI models.
The development has fuelled concerns that investment in AI infrastructure and semiconductor companies may begin to moderate, prompting investors to reassess valuations across the sector.
The uncertainty has already triggered sharp corrections in several AI-focused markets, particularly in South Korea and Taiwan, over the past week.
FIIs continue to provide support
Despite Wednesday's decline, analysts believe one key positive for Indian markets remains intact.
Foreign institutional investors (FIIs) have turned net buyers after several months of sustained selling. On Tuesday, FIIs purchased Indian equities worth Rs 393.19 crore, while domestic institutional investors (DIIs) sold shares worth Rs 383.43 crore.
According to Vijayakumar, FIIs have bought equities worth nearly Rs 1,991 crore over the past three trading sessions.
"The uncertainty surrounding the chip trade and the huge concentration risks associated with investing in three stocks are turning FIIs away from markets like South Korea and Taiwan and towards stable markets like India," he said.
However, he cautioned that this positive trend could reverse if tensions in the Middle East escalate further and crude oil prices continue to rise.
What investors should watch
Market participants are now closely monitoring three key developments.
The first is whether tensions between the United States and Iran escalate further.
The second is the direction of crude oil prices, which remain critical for India's economic outlook.
The third is the upcoming June-quarter earnings season, which will indicate whether Indian companies can maintain earnings growth despite geopolitical uncertainty and inflationary pressures.
Until there is greater clarity on these factors, volatility is expected to remain elevated in the Indian equity markets.
