Indian equities ended the holiday-truncated week only marginally higher, as stalled talks between the US and Iran and president Donald Trump's rejection of Tehran's proposal to remove the blockade of Hormuz pushed crude prices to a three-year high of $126 per barrel.
Still, benchmark indices posted their best monthly show in nearly three years in a relief rally, as investors piled into beaten-down stocks after US and Iran announced a ceasefire early in April following more than a month of conflict.
Surging crude prices pushed the rupee to a record low of 95.32 against the US dollar, sparking concerns that a fragile West Asia truce could unravel, intensifying inflationary and margin pressures. The weakening currency also accelerated foreign outflows, further dampening market sentiment.
The Nifty 50 slipped 0.3% to 23,997.55, while the Sensex fell 0.8% to 76,913.5 on Thursday amid geopolitical concerns. The markets opened with a huge gap-down, prompting value buying later in the day and helping both indices end the week marginally higher by 0.42% and 0.33%, respectively.
April rally
As a result, both indices logged their strongest monthly performance in nearly three years, with the Nifty gaining 7.5% and the Sensex 7% in Aprilātheir most impressive gains since late 2023. The surge was fuelled by a sharp relief rally following the US-Iran ceasefire announcement, when markets jumped 6% in the opening weekātheir best weekly performance in five years.
Underpinning the headline gains was a broadening of market participation. The market breadth improved sharply during the April relief rally, with the advance-to-decline ratio hitting 1.54āits highest level since June 2020ā reflecting a decisive tilt towards rising stocks.
This internal momentum drove the BSE Smallcap 250 and BSE Midcap 150 indices to record their best monthly gains in nearly 12 years and over five years, respectively. Smallcaps jumped 18%, just below their May 2014 peak of 18.4%, while midcaps rose 12.7%, close to their November 2020 high of 13.7%. However, Thursdayās weakness in mid- and small-cap indices suggests profit-booking is intensifying.
The markets are shut on Friday for a public holiday.
Krishna Rao, managing director and co-head of the equity broking group at JM Financial Services, cautioned that Aprilās gains can unwind, particularly in inflation-sensitive sectors, if geopolitical tensions persist beyond June.
Regulatory drag
That nervousness was already evident this week as investors pulled out of financials after the Reserve Bank of India finalised its expected credit loss (ECL) framework on 27 April. The new norms require banks to provision for potential losses upfrontārather than wait for defaultsāleading to a sharp one-time increase in provisioning buffers. Specifically, a proposed 5% provisioning floor for Stage 2 loans marks a steep jump from the current 0.4%, raising profitability concerns for public sector and mid-sized lenders with thinner cushions and more vulnerable loan books, said Tapan Doshi, Smallcase manager and founder of Thoughtful Investor, an investment advisory firm. āElevated valuations and a global risk-off sentiment also added to the selling,ā he added.
As a result, the BSE Bankex, Financial Services, and Private Banks indices emerged as the top laggards this week, while telecom, energy, and technology led the gains.
Meanwhile, the Nifty 50 showed relative stability against regional peers such as Hong Kongās Hang Seng Index and Indonesiaās Jakarta Composite Index, while South Koreaās KOSPI continued to lead gains, buoyed by the artificial intelligence-semiconductor rally.
The AI-led surge in South Korea and Taiwan is being powered by robust semiconductor demand and strong earnings from chipmakers, noted experts. As long as this momentum holds, capital is likely to keep flowing into these markets, while Indiaās higher oil vulnerability and relatively limited AI depth could cap incremental foreign inflows, said Rao of JM Financial.
Added pressure
A weak rupee will continue to weigh on foreign portfolio investor (FPI) inflows too, experts said. āIf there is large buying pressure for dollars, you could see the rupee weakening further. The move might be slower but more secular,ā warned Rajeev Pawar, treasury head at Ujjivan Small Finance Bank.
As markets head into May next week, the relief rally may be losing steam. Lokesh Manik, senior analyst at Vallum Capital, noted that elevated crude prices and a weakening rupee will continue to strain domestic current account deficit and corporate margins, setting the stage for more cautious commentary from India Inc. In this environment, even mildly negative earnings guidance could trigger sharp market corrections, he added.
(Subhana Shaikh contributed to this story.)