As expectations for a settlement to the Iran war have diminished, benchmark indices Sensex and Nifty plummeted more than 1.2% each on March 27, following global markets and rising Brent crude prices.
The Nifty was down 300.35 points, or 1.29%, at 23,006.10 at 09:38 am, while the Sensex was down 1,000.77 points, or 1.33%, at 74,272.68. 2,398 shares fell, 943 shares increased, and 183 shares remained constant.
Key factors behind market decline
Profit booking
Profit booking emerged on March 27 after a whopping 3.5% rally in equities over the last two sessions.
Geopolitical issues
As initial excitement over the US postponing its deadline for Iran to strike a deal faded, a worldwide equities selloff continued into a second day.
US President Donald Trump declared that negotiations with Iran were “very well” and that he would continue to halt strikes on Iran’s energy plants until April. However, an Iranian official described a US proposal to terminate the war as “one-sided and unfair.”
On Thursday, US stocks fell by almost 2%, the yield on the 10-year U.S. Treasury increased above 4.4%, and Brent crude surged by nearly 6% due to growing worries that the Iran War is unlikely to end in the near future.
Following Wall Street indicators’ Thursday decline to its lowest level since September, Asia’s benchmark share index dropped 0.8%. Chipmakers Samsung Electronics Co. and SK Hynix Inc. led losses as South Korea, a poster child for AI spending, saw a 2.7% decrease in technology equities. Taiwanese stock fell 1.4%.
Following the Wall Street Journal’s report that the Pentagon is considering deploying up to 10,000 more ground troops to the Middle East, US equity-index futures similarly limited advances to 0.3%.
Crude that costs more than $100 per barrel
Following a turbulent week in which U.S. President Donald Trump declared that negotiations to terminate the war with Iran were going “very well” and declared he would halt strikes on the nation’s energy plants for ten days, oil prices dropped in early trading on Friday but remained above $100 per barrel.
Following Trump’s 10-day extension, Brent dropped 1.7% to almost $106 per barrel.
Fears of a further escalation of the conflict caused Brent to rise 5.7% on Thursday while WTI climbed 4.6%. However, trade volume for the front-month Brent contract was at its lowest level since February 27, the day before the United States and Israel started striking Iran.
But while WTI has dropped for the second week in a row and Trump has raised the possibility of halting the battle, Brent is on its way to its first weekly decline in six weeks.
“If the war ends, crude prices drop, and gas supply returns to normal, the Indian economy is resilient enough to withstand the blow. However, if the conflict drags on, crude prices stay high for months at a time, and gas supply issues persist, India’s macroeconomic conditions would be severely strained, and the market will ignore that. To put it briefly, everything depends on how long the battle lasts.
Since a protracted war serves no one’s interests, the market hopes it will end soon. The United States of America is currently searching for a way out. According to VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, “market corrections and rising retail prices of petroleum products may exert pressure on the US regime to cool down the conflict.”
Weak rupee
Due to concerns that the Middle East war-related energy supply problem may worsen and put further strain on economies that import energy, the Indian rupee fell to a historic low of 94 per dollar on Friday.
The rupee surpassed its previous all-time low of 93.98 earlier this week, falling to 94.25 per dollar. Since the battle started late last month, it has decreased by roughly 4%.
Foreign investors were net sellers on both days, limiting any positive spillover for the rupee despite a 3.5% increase in stocks over the previous two sessions.
“India’s import bill expectations are directly impacted by this ongoing crude risk, which keeps the rupee under pressure.” Until the energy supply significantly returns to normal, the overall bias stays weak. According to Jateen Trivedi, VP Research Analyst-Commodity and Currency at LKP Securities, the rupee’s near-term range is between 93.70 and 94.50.
VIX rises 7%
The volatility indicator, the India VIX, was up 7%, indicating that the Street anticipates short-term selling pressure.
