Indian markets declined as West Asia tensions pushed crude oil prices higher and weighed on investor sentiment
Indian stock markets ended lower today after a slew of geopolitical tensions in the West Asian region led to a surge in crude oil prices which sapped investor sentiments. Selling pressure was observed across sectors with IT and FMCG stocks witnessing heavy selling activity. Weak global market trend along with continuous exodus of foreign funds further intensified market’s downward spiral.
The 30-share BSE Sensex slid by 307.24 points (0.40%) to close at 76,957.27. Out of the total 30 shares of the benchmark index, 20 stocks ended up closing bearish whereas just 10 concluded on a positive note. During the course of the day, Sensex slumped as much as 513.19 points (or 0.66%), to hit an intra-day low of 76,751.32. On the other hand, the broad based NSE Nifty also witnessed negative trade action, falling down by 95.25 points (i.e., 0.39%) to conclude at 24,080.40, thus failing to sustain above key 24,100 mark.
West Asia Tensions Push Crude Oil Higher
This was one of the key concerns for many investors as the price of international crude oil has sharply surged up. For instance, the global benchmark – Brent Crude – increased by 3.63 percent to reach USD 91.30 per barrel. The hike in the prices of crude oils creates extra worries for a country that is dependent upon crude oil importations such as India. A continued rise in oil prices puts more stress on inflation, trade balances and the cost of corporates. “The escalation of tensions between the US and Iran triggered caution among investors,” says Vinod Nair, Head of Research, Geojit Investments Limited. “With fading hope of a diplomatic breakthrough, the price of crudes along with global bond yields shot up.” “There are always some macroeconomic factors that can be disruptive,” he said. “For example, we’ve got these concerns around energy driven inflation, potential higher rate environments, impact on certain company’s earnings outlooks.”
Adani Ports, ITC and HDFC Bank Among Major Losers
Several large stocks fell today including those from companies such as Adani Ports, ITC, Bharti Airtel, HDFC Bank, Infosys, Kotak Mahindra Bank and others which lagged behind the rest on the index (Sensex). Weakness in sectors of IT and FMCG added further weight to this general fall while higher global yields as well as uncertainties over interest rate hikes have led investors to be wary about taking on more risky assets. However there are still pockets where investors gained ground including in stocks of companies such as Sun Pharma, ICICI Bank, Axis Bank and State Bank of India amongst many others that provided some support for benchmarks without allowing them to lose much ground.
Global Markets Also Remain Under Pressure
While looking at global market trends, we saw that South Korea’s Kospi and Shanghai’s SSE Composite indices ended higher. However, Japan’s Nikkei 225 and Hong Kong’s Hang Seng indices closed lower. European markets are currently trading mostly in negative territories amid this session. On Friday, US markets also ended lower, contributing to worries regarding the near term movement of global equities. The mixed performance reflects investor concerns over various geopolitical developments, crude prices, inflation, and interest rates.
Foreign Fund Outflows Add Pressure
A significant worry for the domestic market was the activity of foreign institutional investors (FIIs). According to exchange data, FIIs were selling equities valued at ₹5,039.80 crore on Friday. Continued foreign selling could weigh heavily on Indian benchmark indices especially considering sluggishness among global markets. Thus, investors are keeping their eyes out for further clues from overseas inflows and outflows, currency fluctuations and global bond yields ahead.
Markets Had Gained on Friday
After a positive session on Friday as the Sensex had gone up by 330.92 points or 0.43 per cent to shut at 77,264.51, the Nifty also rose by 84.80 points or 0.35 per cent to end at 24,175.65..However, the worries around the geopolitics as well as high crude prices saw these profits being wiped out at the onset of this new week.
What Investors Will Watch Next
Moving forward, we can expect continued focus from investors on various developments such as what happens in West Asia, crude oil prices, global bond yields and foreign institutional flows. A further escalation of these tensions would mean sustained higher energy prices and increased market volatility for equities. With this context, we believe that all market participants continue to focus on the signals coming out of central banks and how they view future interest rate expectations. As mentioned before, inflationary pressures and higher levels of borrowing costs appear to be key concerns which may drive investors to take a more cautious stance until there’s greater clarity about the state of global economies and geopolitics.
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