Indian equities slide on oil shock ahead of Federal Reserve and earnings
Benchmark Indian indices posted significant weekly losses driven by surging crude oil prices and geopolitical risks, leaving investors cautious ahead of critical US Federal Reserve policy decisions and domestic corporate earnings.
The Sensex fell 2.68% to 76,059.77 and the Nifty dropped 2.33% to 23,767.45 last week, dragged down by banking stocks and a weaker rupee. Broader indices also retreated, with midcap and smallcap gauges declining 1.29% and 2.18% respectively.
This downturn reflects a broader risk-off mood triggered by escalating tensions between the US and Iran. Crude oil prices surged earlier in the week as traffic through the Strait of Hormuz slowed and Houthi rebels attacked Red Sea vessels.
Brent crude settled at $96.78 per barrel on Friday, falling 3.88% after briefly crossing $100, though it remained on track for a 10% weekly gain. West Texas Intermediate closed at $89.31, down 3.12% on the day but up 8.27% for the week.
The oil rally paused after reports emerged that China is reviving stalled peace negotiations between Washington and Tehran. Additionally, US President Donald Trump reportedly halted plans for broader military action against Iran following warnings about shrinking Patriot missile stockpiles.
V K Vijayakumar, chief investment strategist at Geojit Investments, noted that the Brent crude spike threatens India’s macroeconomic stability if sustained. He warned that "the rise in the US 10-year bond yield to 4.7% is largely negative for equities" and could restrict foreign portfolio flows to emerging markets.
Investor focus now shifts to the US Federal Reserve’s July 28-29 policy meeting, where the benchmark rate is widely expected to remain unchanged at 3.50% to 3.75%. Ponmudi R, chief executive of Enrich Money, stated that this will be the "defining macro event of the week" as elevated energy costs and a hawkish Chair Kevin Warsh keep surprise rate hike fears alive.
Ajit Mishra, senior vice president of research at Religare Broking, emphasized that "interest rate guidance and inflation commentary" from the Fed will be critical for global markets. He added that the ongoing earnings season and corporate management commentary will continue to serve as the primary stock-specific catalysts.
Domestically, the first-quarter FY27 earnings season accelerates with major companies including L&T, Hindustan Unilever, ITC, and Adani Enterprises reporting results. Ponmudi R highlighted that results from consumer staples firms like Dabur will provide essential insights into rural and urban demand conditions.
He expects market sentiment to remain cautious as investors navigate geopolitical and macroeconomic uncertainties. Ponmudi noted that market participants are currently favoring quality businesses that offer resilient earnings visibility while maintaining a measured approach toward risk.
Institutional trading patterns highlight the current divergence in market sentiment. Domestic institutional investors were net buyers of ₹5,453.55 crore on July 24, while foreign institutional investors sold a net ₹3,892.77 crore.
Vijayakumar observed that foreign investors have been selling heavily in South Korea and Taiwan due to a weakening chip trade, which he considers a positive development for India. He concluded that stabilizing crude prices are the key data point required to turn foreign investors into consistent buyers of Indian equities.
