Hormuz shutdown tests Indian stocks after FII buying return
Iran's decision to close the Strait of Hormuz threatens to derail a fragile Indian equity recovery just as foreign investors returned to net buying.
The US launched strikes on Iran's IRGC after an attack on the Cyprus-flagged cargo ship M/V GFS Galaxy in the Strait of Hormuz. Iran responded by closing the strait until further notice, ignoring US demands to reopen the critical shipping lanes.
The escalation ended a four-week winning streak for Indian equities, with the Sensex falling 0.25% to 77,569 and the Nifty slipping 0.26% to 24,207. Broader markets showed resilience, as midcap and smallcap indices gained more than 1%.
For India, the primary concern is the inflationary impact of a crude oil price spike. Delayed rainfall in some regions is already stoking food price anxieties, and elevated energy costs would compound those domestic pressures ahead of key June data releases covering CPI, WPI, trade balances and foreign exchange reserves.
The geopolitical shock arrives just as foreign capital flows showed signs of stabilising. After four consecutive months of heavy selling—totaling Rs 1.17 lakh crore in March, Rs 60,847 crore in April, Rs 32,963 crore in May and Rs 49,340 crore in June—foreign investors turned net buyers of Indian equities in July. They have invested over Rs 15,157 crore so far this month, drawn by improving domestic macros, a stable rupee and better global risk sentiment. A widening conflict could quickly reverse this trend.
Domestic catalysts provided some insulation during the week, with the early start to Q1 earnings and in-line results from TCS helping banking and IT stocks recover mid-week losses. Sectors like banking, IT, pharma, defence and select realty names may continue to hold up if earnings commentary remains steady, though IT faces lingering questions around discretionary spending and artificial intelligence.
Technically, the Nifty has immediate support in the 23,800-24,000 zone. "On the higher side, the 24,400-24,600 range remains the first hurdle. A move above that zone can improve sentiment and open the way for a test of 25,000," said Ajit Mishra of Religare Broking. The Bank Nifty remains structurally stronger, with support at 56,400-57,300 and a path to 60,000 if it clears 58,800.
Market direction now hinges on a balance of forces. "Sustained Q1 earnings outperformance could strengthen confidence in the FY27 earnings outlook and help revive FII inflows," Nair said, adding that "moderation in crude prices and easing geopolitical tensions can improve sentiment."
