Key points
- Nifty and Sensex fall 0.5 per cent each
- Oil nears $97 as Hormuz tensions intensify
MUMBAI: Indian shares fell to their lowest level in six weeks on Monday, dragged lower by technology stocks as escalating tensions in the Middle East, higher crude prices and growing expectations of a US Federal Reserve rate hike weighed on investor sentiment.
The Nifty 50 ended 0.5 per cent lower at 23,779.15, while the BSE Sensex fell 0.5 per cent to 76,132.81. Both benchmarks have now declined for four consecutive weeks, losing 2.7 per cent and 2.5 per cent, respectively, over that period.
The Nifty IT index was the biggest drag, falling 2.3 per cent. Infosys dropped 3.8 per cent, Tech Mahindra 2 per cent and TCS 1.3 per cent.
Stronger-than-expected US jobs data has revived expectations of a September Federal Reserve rate hike, raising concerns that higher borrowing costs could curb corporate technology spending in the United States, a major market for Indian IT companies.
Oil prices added to the pressure. Brent crude traded around $97 a barrel after fresh US-Iran military tensions and attacks on tanker ships near the Strait of Hormuz raised fears of disruptions to global energy supplies.
India, which relies heavily on imported crude, is particularly vulnerable to a sustained rise in oil prices, higher inflation, a yawning import bill and pressure on corporate margins, according to Reuters.
“Market instability with a downward bias will continue in the short term due to periodic conflicts and higher crude oil prices,” said G Chokkalingam, founder and head of research at Equinomics Research.
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The pressure extended beyond large technology companies. Fourteen of the 16 major sectors closed lower, with media, real estate and metals among the other notable decliners. Healthcare and pharmaceutical stocks bucked the broader trend, providing some support to the market.
Indian rupee under pressure
The rupee also remains under pressure from elevated oil prices. Reuters reported on Tuesday that the currency was trading around 94.50 per dollar, with rising crude prices and higher US Treasury yields limiting its recovery despite intervention by the Reserve Bank of India.
Indian equities therefore face a difficult combination of external pressures: expensive oil, geopolitical uncertainty, tighter US monetary policy expectations and persistent foreign investor selling.
The Strait of Hormuz has become an increasingly important market variable because any prolonged disruption to oil flows could intensify inflationary pressures across energy-importing economies such as India.
On Tuesday, Indian shares opened lower again, with the Nifty down 0.15 per cent and the Sensex down 0.21 per cent at 9:15 a.m. local time, as Brent remained near $97 a barrel.
The US-Iran war has intensified economic pressures on India by threatening energy supplies, raising inflation risks and weakening the rupee.
India imports nearly 90 per cent of its crude oil requirements, leaving the economy highly exposed to prolonged increases in global oil prices. Brent crude approaching $97 a barrel has widened the import bill, increased transport and production costs, and squeezed corporate profit margins.
A sustained disruption to oil flows through the Strait of Hormuz would further amplify those pressures. Higher fuel and logistics costs could feed into consumer prices, complicating the Reserve Bank of India’s efforts to balance inflation control with economic growth.
Elevated oil prices could also widen India’s current account deficit and increase demand for dollars, putting additional pressure on the rupee.
The currency’s weakness could make imported energy and other commodities more expensive, adding to inflationary pressures.
At the same time, higher US Treasury yields and expectations of tighter US monetary policy could encourage foreign investors to shift funds towards dollar assets, adding to capital outflow risks.
Prolonged conflict would also raise risks to global trade and supply chains, potentially slowing India’s growth.
