Sensex drops 700 points as Middle East tensions lift crude
Indian equities wiped out Rs 2 lakh crore in market capitalisation as escalating US-Iran military strikes near the Strait of Hormuz pushed Brent crude above $79 a barrel, threatening the country's trade balance.
The Sensex fell 712 points to 76,857 and the Nifty 50 dropped 207 points to 24,000 on Monday, snapping a two-session gaining streak. The selloff was broad, with 1,625 stocks declining on the National Stock Exchange against 978 that advanced. India VIX, the market's fear gauge, surged more than 8% to 13.24.
The immediate catalyst was a sharp escalation in the Middle East, where Iran expanded strikes to Qatar and the United Arab Emirates following US attacks. Tehran claimed it had closed the Strait of Hormuz, a conduit for a fifth of global oil supply. While Washington maintained the waterway remained open, Brent crude jumped 4% to $79 per barrel and WTI climbed above $74.
Higher oil prices pose a direct threat to India's trade balance and currency. The rupee opened 0.4% lower at 95.7050 against the dollar. Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities, noted that investors will now look to next week's US consumer price inflation data, alongside foreign fund flows and crude prices, to determine the rupee's near-term trajectory.
Rising US Treasury yields compounded the risk-off mood. The benchmark 10-year yield rose to 4.585% and the 30-year yield hit 5.082%. Wall Street futures pointed to a lower open later today, while regional markets experienced heavier losses, with South Korea's Kospi crashing more than 7% and Japan's Nikkei dropping 2%.
For India, the critical variable is the trajectory of crude. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the market can absorb current levels. "So long as Brent trades below $90, the market won’t be impacted significantly," he said. "But if Brent shoots up to above $90, there can be a significant correction in the market."
Vijayakumar added that foreign institutional investors are providing a floor for Indian equities. FIIs have been net buyers in five of the last eight trading sessions, rotating capital away from concentrated chip trades in South Korea toward India's more diversified growth prospects.
On the ground, financials, metals and autos bore the brunt of the selling, with major lenders and industrial conglomerates falling 1% to 3%. IT stocks bucked the trend, rising up to 2%. Technically, Geojit's Anand James said the Nifty will attempt to reclaim upside momentum as long as it holds above the 24,090 to 24,170 support band.
