Indian equities hit record highs as banks rally, inflation cools
Indian stocks surged to record levels as a banking rally and cooling US inflation outweighed escalating Middle East tensions and elevated oil prices.
The Sensex rose 500 points to 77,555 and the Nifty gained 150 points to cross 24,200 by mid-morning. The India VIX volatility index dropped over 4% to 13.17, reflecting broad-based optimism across 2,116 advancing stocks on the NSE.
The rally was anchored by a global risk-on sentiment following cooler-than-expected US inflation data. Headline US consumer prices fell 0.4% in June, the first decline since the pandemic, while annualised core inflation came in at 2.6% against expectations for 2.8%. This scaled back projections for Federal Reserve rate hikes, lifting Asian markets with South Korea's Kospi surging 7% and Japan's Nikkei rising more than 1%.
Domestic financial stocks spearheaded the advance, with Nifty Financial Services, PSU Bank and Private Bank indices all jumping more than 1%. Lenders including SBI, ICICI Bank, Axis Bank and Bajaj Finance gained between 1% and 3%. "Improving balance sheets, better liquidity conditions, stable interest rates and moderating credit costs are expected to support stronger growth and mark the beginning of a broad-based earnings upside for financials sector," said Siddhartha Khemka, head of research of wealth management at Motilal Financial Services.
The market's disregard for geopolitical risk was notable. Iran and the US exchanged escalating threats, with Iran's Islamic Revolutionary Guard Corps warning it could close all export corridors benefiting the U.S. after shutting the Strait of Hormuz. Despite Brent crude trading around $86, the Indian rupee strengthened 5 paise to 96.11 against the dollar.
Investors are effectively betting that historical patterns will hold over current threats. "The resilience is because investors are not pricing in a full-blown war in the Middle East. Moreover, markets also appear to be getting accustomed to intermittent geopolitical tensions in the region,” said S Naren, chief investment officer, ICICI Prudential AMC.
Analysts warn that this complacency carries risks. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that shifting U.S. policy stances on Middle East transit fees make "total uncertainty the new normal, rendering investment decisions extremely challenging." Domestically, India faces rising consumer inflation at 4.38% in June and an 18% monsoon deficiency. However, strong credit growth and robust auto demand suggest underlying economic resilience, keeping analysts constructive on upcoming first-quarter earnings from banks, non-bank lenders and digital platforms.
