Markets tumble after Donald Trump ends ceasefire

The end of the ceasefire between the US and Iran rattled equity markets in India and globally, triggering a sharp sell-off and fresh volatility on Wednesday.

A rise in crude oil prices and continued selling by foreign institutional investors (FIIs) may further deepen the fall in Indian equities.

The Nifty 50 fell 2.1% to 23,882, while the Sensex fell 2.1% to 76,503—their lowest levels since 30 March—as traders rushed to dump their shares in the second half of the trading session.

Even global markets reacted sharply to the collapse of the ceasefire. South Korea’s Kospi fell by 5.3%, Hong Kong's Hang Seng fell by 3%, Japan’s Nikkei fell by 2.1%, and China’s CSI 300 fell by 0.8% on Wednesday.

Volatility returns

Volatility, which had remained subdued after the June ceasefire announcement, inched higher after US President Donald Trump said: “I think it's over.”

Trump made the remarks at a joint press conference with Nato chief Mark Rutte at the alliance's summit in Ankara, Turkey, after the US and Iran accused each other of breaking the ceasefire.

“The only certainty in today's uncertain world is volatility. Much of the induced volatility has been driven by policy decisions and statements from the US President, making it difficult to predict where markets will head," said Manish Bhandari, Founder, chief executive and portfolio manager at Vallum Capital Advisors.

“What worries the Indian market is our dependence on oil and other energy sources. It has a fiscal and inflationary impact,” Bhandari said.

Even Ramneek Kundra, chief investment officer at DSP Pension Fund, said the biggest risk for the country is a sustained rise in crude oil prices if the war drags on, as it imports nearly 80-85% of its oil requirements.

“Higher fuel costs could hurt discretionary spending, while supply-chain disruptions in areas such as chemicals and fertilizers could add further pressure,” Kundra said. Brent crude rose by 3.03% to touch $78.5 per barrel as of 5pm.

With the rupee's long-term depreciation trend, capital gains tax, and India not appearing particularly cheap on valuations, stronger and consistent FII inflows may take time, Kundra of DSP Pension Fund Managers said.

After remaining net sellers every month since March and offloading nearly ₹2.5 trillion during the period, they have turned net buyers in July, purchasing shares worth around ₹5,613 crore so far.

FIIs net bought shares worth ₹1,962 crore, while DIIs net bought shares worth ₹790 crore, showed provisional data from BSE on Wednesday.

Widespread correction

Heavyweights dragged the Nifty 50 lower, with HDFC Bank declining 2.4%, ICICI Bank falling 2.2%, and Reliance Industries slipping 2.5% on Wednesday.

Of the Nifty 50 stocks, 46 ended the day in the red. Market breadth was equally weak. On the Nifty 500, the advance-decline ratio stood at just 0.16, showing similar widespread selling across the broader market. All the Nifty sectors closed in the red. BSE market capitalisation fell by ₹16.31 trillion to ₹445 trillion.