Indian stocks fell for a fifth straight week on Friday as a widening war in West Asia sent crude oil prices soaring, stoking inflation concerns, while rising US bond yields raised expectations of interest rate hikes by central banks.
The benchmark Sensex fell 2.3% over the week, while the Nifty 50 declined 2.1%, marking their steepest weekly drop since 24 July. On Friday, Indian equities faced a sharp sell-off, dragging the Nifty 50 to a three-month low. The Sensex and Nifty recovered from their intraday lows but still ended 0.16% and 0.34% lower at 74,781.8 and 23,398.10, respectively.
Analysts said crude oil remained a major concern, as Brent held above $100 a barrel amid an escalation in the West Asia war.
“Brent crude exceeded $108/bbl in Asian trade, nearing $110, after escalating US-Iran tensions and attacks on Saudi energy infrastructure pushed the benchmark above $100 for the first time in weeks,” said Vinit Bolinjkar, head of research at Ventura.
The crude oil rally pushed the 10-year US Treasury yield to 4.95-4.97%, its highest level since October 2023 and close to the critical 5% threshold. This sets the stage for a potential rate hike at the 16 September US Fed meeting. "The move coincided with a hawkish repricing in US interest rates, with markets now pricing in a ~71% probability of a 25-basis-point Fed hike next week, up from 61% prior to the producer price index print,” he added.
Risk-off sentiment
The prospect of a Fed rate hike, which could tighten global financial conditions and push interest rates higher, triggered a risk-off move in rate-sensitive sectors, with real estate emerging as a standout underperformer. The BSE Realty index fell 6.4% this week, followed by the BSE IT index, which dropped 5.3% amid heightened concerns over artificial intelligence (AI) disruption.
“Realty is a high-duration sector, where rising global yields, tighter liquidity, and elevated construction costs immediately compress valuation multiples,” said Karthick Jonagadla, founder and chief executive officer (CEO) of Quantace Research. He added that the sell-off in IT stocks, triggered by concerns over ChatGPT, reflects a genuine risk.
“AI could lower effort-based billing and accelerate client productivity demands before Indian IT firms can monetize AI services at scale.”
Beyond the domestic shores, global equities continued to navigate geopolitical instability, elevated US Treasury yields, and shifting sentiment around the AI trade. Even so, South Korea’s equity market proved resilient, topping global benchmarks with a 3.3% weekly gain, followed by Brazil’s Ibovespa index, which rose 1.7%. “Korea’s resilience is concentrated rather than broad-based,” Jonagadla noted.
Most other major markets closed in the red, with Hong Kong’s Hang Seng index plunging the most at 3.1%, closely followed by Indian equities as the second-worst performer.
Meanwhile, foreign portfolio investors have snapped their recent buying streak, net selling ₹13,138 crore in September so far and unwinding the inflows recorded over July and August. “The combination of elevated US yields, a firmer dollar, and crude oil hovering above $100 is a classic emerging market risk-off setup, and current price action is tracking that pattern,” added Bolinjkar.
Emerging headwinds
Rate decisions from the US Fed and the Bank of Japan next week, together with crude oil trends, will determine near-term market direction. Beyond the central bank action, elevated energy costs , persistent foreign outflows, and geopolitical friction will continue to fuel market volatility. “Crude above $100 and associated inflation and current account deficit concerns remain an independent headwind that a Fed hold does not directly address,” said Bolinjkar. “Unless there is tangible progress on the Middle East conflict, elevated oil and dollar strength are likely to remain the key near-term constraints for Indian equities.”