Indian stock markets experienced a sharp decline on Monday, with the Nifty 50 and Sensex indices reaching their lowest levels in nearly six months. The downturn was driven by weakening hopes for a diplomatic resolution between the United States and Iran, coupled with a surge in crude oil prices, which surpassed $100 a barrel.
The Nifty 50 fell by 1.6%, closing at 22,780.25, marking its lowest point since April 2. Meanwhile, the Sensex dropped by 1.5%. This decline was part of a broader trend across global markets, with significant losses observed in major Asian indices as well.
Brent crude futures rose to approximately $107 a barrel, having touched $108.83 earlier, amid growing concerns about ongoing disruptions in the Strait of Hormuz. The uncertainty around energy supplies has heightened fears of increased inflationary pressures worldwide.
India, which imports approximately 90% of its oil, is particularly vulnerable to rising crude prices. A sustained increase could substantially raise the country’s import bill, intensify inflation, and impact corporate profit margins and economic growth. Moreover, higher prices for liquefied natural gas and fertilizers could exacerbate these pressures.
The Nifty index has witnessed a decline of about 13% this year. The Nifty PSU Bank index also fell by 3.2%, with real estate and oil and gas stocks suffering considerable losses. The Indian rupee weakened by 0.2%, trading at 95.9850 against the US dollar.
Additionally, rising global inflation and increasing US bond yields are contributing to pressures on emerging markets. With the US 10-year Treasury yield nearing 5%, concerns about capital outflows are mounting, potentially limiting central banks’ ability to maintain lower interest rates.
Market participants are now closely watching the Reserve Bank of India’s upcoming policy review for guidance on interest rates, inflation, and economic growth. The continued strength of crude oil prices poses a risk to the rupee and could influence the central bank’s policy direction.