The current slide also marks the second-worst monthly fall for the Nifty in the last ten years, indicating the intensity of the sell-off that has taken Dal Street.
The sharp correction came last week as an escalation of conflict in West Asia, particularly the ongoing Iran conflict, sent oil prices soaring and heightened global risk aversion. India, which imports nearly 85% of its crude oil needs, is particularly vulnerable to any disruption in Middle Eastern supply chains.
Also Read: Explained: Why Traders Aren’t Holding Gold Despite Safe Haven Demands Since Middle East War
With Brent crude nearing $100 per barrel, concerns over the impact on inflation, corporate margins and the rupee have grown. The Strait of Hormuz, through which the bulk of India’s oil imports pass, has emerged as a key geopolitical point as the conflict escalates.
The market collapse was also exacerbated by heavy selling by foreign institutional investors. FIIs have already sold nearly Rs 40,000 crore worth of Indian assets so far this month, putting sustained pressure on large-cap stocks and underperforming benchmark indices.
The BSE Sensex is closing the week down by nearly 4,000 points, while the Nifty is down around 5% in just five trading sessions. Sales, by and large, also include the wider market. On Friday alone, the Nifty small and midcap indices fell by nearly 3%. In addition to the Iran conflict, analysts say worries about global growth and sector-specific momentum have also contributed to the market’s weakness. The rapid adoption of artificial intelligence globally has raised questions about the near-term outlook for India’s IT services sector, which has seen underperformance in recent months as investors reassessed their demand outlook.
Foundations remain strong
Despite the current volatility, fund managers say the fundamentals of India’s economy remain strong. According to Sorbh Gupta, head of equities at Bajaj Finserv AMC, corporate earnings have shown strong momentum in the last few quarters, providing a more supportive base for the markets.
The latest results indicate a broad-based recovery in profitability across all sectors. Profit growth for Nifty 500 companies rose 16% year-on-year in Q3 of the fiscal year, marking the strongest earnings expansion in eight quarters.
Gupta noted that an improved earnings outlook could help stabilize equities once the current wave of global uncertainty subsides.
Domestic macroeconomic indicators have also shown signs of improvement. Credit growth has returned to double-digit levels, suggesting strong demand for loans and improving liquidity conditions. Consumption trends have started to recover following fiscal and policy support, while earlier rate cuts by the Reserve Bank of India have helped reduce borrowing costs for both companies and consumers.
Over the long term, markets have historically absorbed geopolitical shocks relatively quickly. Axis Mutual Fund pointed out that Indian equities have weathered several global crises over the past decade – from regional conflicts to wars and economic turmoil – with only temporary dips before fundamentals reasserted themselves.
However, the near-term outlook remains closely tied to geopolitical developments.
If tensions in the Middle East escalate further, crude oil prices could remain high, potentially leading to higher inflation, pressure on the rupee and margin pressure for sectors such as aviation, chemicals, paints and oil marketing companies.
Also Read: $100 crude gives Nifty bills a shock of Rs 20 lakh crore this week. Best time to panic?
Analysts say India’s strong foreign exchange reserves and strategic petroleum reserves offer some cushion against external shocks, but markets will remain volatile as investors track developments in the region.
(Disclaimer: The suggestions, recommendations, views and opinions given by the experts are their own. They do not represent the views of The Economic Times)
