For investors in India, Wednesday highlighted how quickly geopolitical tensions thousands of kilometres away can affect domestic portfolios. The latest escalation between the US and Iran pushed crude oil prices higher, renewed concerns over inflation and contributed to a global bond sell-off, putting pressure on Indian equities for much of the trading session.
However, the domestic market recovered from its early lows as investors stepped in to buy select banking, oil and gas, and large-cap stocks.
The BSE Sensex closed at 76,570.35, losing 373.93 points, or 0.49%, from its previous close of 76,944.28. The index opened at 76,471.32 and traded between an intraday low of 76,135.72 and a high of 76,570.35.
The Nifty 50 ended at 23,914.45, down 141.35 points, or 0.59%. It opened at 23,858, slipped to 23,786.80 during the session and later recovered to an intraday high of 23,914.45.
The decline came as global markets remained under pressure following the US announcement that it had carried out overnight airstrikes on targets in Iran, followed by an Iranian response. The renewed confrontation heightened concerns over potential disruptions to oil supplies from the region.
CRUDE OIL AND MIDDLE EAST TENSIONS WEIGH ON SENTIMENT
Brent crude was trading 0.49% higher at $95.11 a barrel, while WTI crude rose 0.32% to $90.51 a barrel.
Brent had briefly climbed to its highest level in nearly six weeks before giving up some of its gains. Rising crude prices are particularly important for India because of the country's heavy dependence on oil imports. A prolonged period of elevated crude prices could increase the import bill, fuel inflationary pressures and weigh on economic growth.
The impact was visible across oil-sensitive stocks. Asian Paints declined 1.61%, while IndiGo fell 1%. Automobile stocks also remained weak, with the Nifty Auto index dropping 1.79%.
Vinod Nair, Head of Research at Geojit Investments Limited, said investor sentiment was affected by the combination of escalating geopolitical tensions and the global bond sell-off.
He said the intensifying bond-market rout, amid rising West Asia tensions and expectations that central banks could be forced to tighten monetary policy, had increased investor anxiety.
Despite the pressure from higher crude prices, the rupee remained relatively resilient, supported by dollar sales from the Reserve Bank of India and strong FCNR(B) inflows, Nair noted.
GLOBAL BOND SELL-OFF ADDS TO PRESSURE
The rise in global bond yields emerged as another major concern for Indian investors.
Higher oil prices have revived fears that inflation could remain elevated for longer, potentially reducing the scope for central banks to cut interest rates. Markets have also begun considering the possibility of a US rate hike in the near term.
An increase in US interest rates and bond yields can make American assets more appealing compared with emerging markets such as India. This can influence international capital flows and put additional pressure on emerging-market stocks.
Rising bond yields can also raise concerns about equity valuations and liquidity conditions.
Nair said domestic equities traded with volatility as investors responded to weak global signals, with mid-cap stocks facing particularly strong selling pressure.
The broader market reflected the weakness. The Nifty Midcap 50 declined 0.70%, while the Nifty Midcap 100 slipped 0.53%. The Nifty 500 fell 0.50%, the Nifty 100 declined 0.46% and the Nifty 200 lost 0.47%. The Nifty Smallcap 100 performed relatively better, ending 0.37% lower.
Meanwhile, the India VIX fell 1.34% to 11.34 by the close, indicating that some of the volatility seen earlier in the session had eased.
AUTO AND IT STOCKS FALL, OIL & GAS AND BANKS OFFER SUPPORT
Sectoral performance was mixed, although most sectoral indices ended in negative territory.
The Nifty Auto index was the biggest decliner, falling 1.79%, followed by Nifty Media, which dropped 1.75%. Nifty IT declined 1.25%, while Nifty Financial Services lost 0.72%.
Nifty Private Bank fell 0.56%, Nifty FMCG declined 0.47% and Nifty Consumer Durables dropped 0.31%. Nifty Healthcare lost 0.24%, while Nifty Metal declined 0.25%.
Nifty Pharma remained largely unchanged, slipping just 0.04%.
In contrast, Nifty Oil & Gas gained 0.33%, Nifty Realty rose 0.21% and Nifty PSU Bank edged up 0.07%.
Oil and gas stocks benefited from expectations of improved realisations for upstream companies as crude prices moved higher.
Nair said gains in upstream oil and gas stocks, driven by expectations of higher realisations, along with value buying in banking stocks, helped the market recover from its intraday lows.
Adani Ports was the biggest Sensex gainer, rising 1.63%. Bajaj Finserv advanced 1.02%, Power Grid gained 1%, NTPC climbed 0.96% and Titan added 0.70%.
Reliance Industries rose 0.44%, Trent gained 0.43%, Bajaj Finance advanced 0.37% and Sun Pharma increased 0.13%. ITC edged up 0.02%.
Among the major decliners, Asian Paints fell 1.61%, while HDFC Bank and M&M declined 1.56% each. HCL Technologies lost 1.49%, BEL dropped 1.33% and Infosys fell 1.28%.
State Bank of India declined 1.22%, IndiGo lost 1%, Hindustan Unilever fell 0.95% and TCS declined 0.89%. Tech Mahindra, ICICI Bank, Maruti Suzuki and Bharti Airtel also ended lower.
DOMESTIC ECONOMIC STRENGTH OFFERS SOME SUPPORT
Despite the day's decline, India's domestic economic indicators continue to provide a degree of support to the equity market.
Investors are currently balancing strong domestic fundamentals against a challenging global environment. Recent GDP figures, GST collections, credit growth and automobile data have indicated continued momentum in the Indian economy, while the outlook for corporate earnings has also improved.
The relative stability of the rupee has provided another positive signal. Nair said the currency had remained resilient despite pressure from higher crude prices, aided by RBI intervention and FCNR(B) inflows.
For India, the bigger concern is not necessarily a one-day jump in crude prices but the possibility of oil remaining elevated for an extended period. Sustained high crude prices could affect inflation, the import bill, corporate expenses and overall economic growth.
Investors will therefore continue to closely monitor crude oil prices and developments in the US bond market.
The escalation in the US-Iran conflict has introduced an additional geopolitical risk premium into oil prices, while higher global yields have increased concerns about monetary policy and liquidity. At the same time, India's domestic growth indicators and selective buying in large-cap stocks are helping offset some of the external pressure.
Wednesday's trading session ultimately left Indian equities caught between global headwinds and domestic resilience. While geopolitical tensions and the worldwide bond sell-off have made investors more cautious, the market's recovery from its intraday lows indicates that domestic buyers remain willing to selectively accumulate stocks.
