Sensex drops 700 points on bank sell-off, $90 oil
India's benchmark indices fell sharply as disappointing bank margins and surging crude oil prices triggered foreign investor outflows and renewed rate hike fears.
Indian equities fell sharply on Monday morning, with the Sensex dropping over 700 points to an intraday low of 77,445 and the Nifty 50 declining 180 points to 24,150. The losses were concentrated in large-caps, as the Nifty Midcap 100 and Smallcap 100 indexes climbed 0.20% and 0.30% respectively.
Heavy profit-taking in the financial sector drove the declines. HDFC Bank, Axis Bank, and Kotak Mahindra Bank led the losses, pulling the Bank Nifty down 1.6% and the Financial Services index down 2% following underwhelming first-quarter results. "The margin pressure in select banks is weighing on market sentiment," said Ajit Mishra, SVP of Research at Religare Broking. "While deposit growth has improved, margins have not expanded along the expected lines. That is what's affecting sentiment."
Escalating military tensions between the US and Iran compounded domestic banking concerns by driving Brent crude September futures up more than 2% to trade above $90 a barrel. As the world's third-largest crude importer, India faces heightened inflation risks from the conflict's potential disruption to energy supplies through the Strait of Hormuz. "Brent crude spiking above $90 is the strongest headwind," noted VK Vijayakumar, Chief Investment Strategist at Geojit Investments. "If this trend continues, India’s vulnerability to energy shock will resurface with negative implications for the rupee and FPI flows."
The confluence of weaker oil and banking fundamentals accelerated foreign capital flight. Foreign portfolio investors sold ₹9,120 crore in the cash segment last week, extending a selling streak driven by rising geopolitical risks. "Banking and IT stocks account for a significant portion of FPI portfolios. So, if there is selling pressure from FPIs, these sectors are likely to be hit first," Mishra said. The Indian rupee weakened 0.2% to 96.4575 per dollar, approaching its late May record low of 96.9650.
Traders are closely watching the 24,200 level on the Nifty 50 to determine the market's near-term direction. "As long as the market trades above these levels, the bullish sentiment is likely to remain intact," said Shrikant Chouhan, head of equity research at Kotak Securities. Analysts warn that sustained crude prices could force the Reserve Bank of India to raise interest rates, keeping banking margins under pressure for the coming quarters.
