benchmark stock market indices ended sharply lower on Monday, close to their one-year lows, as a strong rise in crude oil prices raised worries about inflation and economic growth in the country.
The fall came as the conflict involving Iran entered its second week with no clear signs of easing. The sharp jump in global oil prices triggered concern for India, which is the world’s third-largest importer of crude oil.
The Nifty 50 index fell 1.73% to close at 24,028.05, its lowest closing level in 10 months. The market’s volatility (VIX) also surged to a 21-month-high, showing that uncertainty among investors has increased.
The BSE Sensex dropped 1.71% to end at 77,566.16, an 11-month low. The index is now close to confirming a correction from its record closing high seen in December last year. Since the Iran war began, the benchmark indices have fallen around 4.6%.
Oil prices jumped as much as 28.9%, reaching their highest level since mid-2022. The rise came as the Iran war continued and Tehran named Mojtaba Khamenei as the successor to his father Ali Khamenei. The move was widely seen as a direct rebuke to US President Donald Trump.
Higher crude prices are a major concern for India. Costlier oil imports can push up inflation and increase pressure on the Indian rupee, which recently slipped to a record low against the US dollar.
The rise in oil prices has also raised fears that interest rates could stay high across the world, which could slow economic growth.
GLOBAL MARKETS AND FII SELLING ADD PRESSURE
The weakness was not limited to India. Other Asian stock markets also declined, while Wall Street futures moved lower as the sharp rise in oil prices raised fears of an inflation shock globally.
Foreign investors also continued to pull money out of Indian equities. According to provisional exchange data, foreign investors withdrew about $2.4 billion from Indian shares last week.
SELLING SEEN ACROSS MOST SECTORS
The market decline was broad-based. Fifteen of the 16 major sectoral indices ended in the red.
The broader market also saw heavy selling. Small-cap stocks fell about 2.2%, while mid-cap stocks lost around 2%.
Shares of state-run oil refining companies were among the worst hit. Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation fell between 4.4% and 6.2%. The rise in crude oil prices is expected to squeeze their marketing margins.
Government-owned lenders also saw strong selling. The Nifty PSU Bank index fell 4% as investors worried that higher oil prices could keep interest rates elevated, which may affect treasury income.
Among private banks, HDFC Bank shares dropped 1.9%, while ICICI Bank fell 2.7%.
Airline stocks were also under pressure. Shares of IndiGo declined 3.8% as investors worried that higher fuel costs and weaker international travel demand could affect earnings.
Infrastructure major Larsen & Toubro, which has significant exposure to the Middle East region, lost 2.7%. The stock had already fallen 7.7% last week.
Vinod Nair, Head of Research at Geojit Investments Limited, said the selling pressure increased as the Middle East conflict continued without signs of easing.
“Selling intensified as the Middle East conflict entered its second week with no signs of de-escalation. The sustained rise in crude prices is likely to complicate the RBI’s policy outlook by keeping inflation elevated and posing risks to growth. Additional concerns in the U.S. about potential caps on redemptions in specific funds also contributed to the sell-off,” he said.
Nair added that despite the current weakness, the phase may offer opportunities for long-term investors.
“Despite this, the current phase may offer opportunities for long-term investors. Selective value buying in pharma and IT helped limit deeper losses and indicated a defensive stance amid a weakening rupee in the short term,” he said.
