Oil spike knocks markets to sharpest weekly fall since mid-May
Indian equities recorded their steepest weekly decline in ten weeks as escalating tensions in West Asia, rising crude oil prices, a weakening rupee and the uncertainty over corporate earnings prompted investors to cut risky positions.
Benchmark Nifty 50 and the Sensex fell 0.4% each on Friday to close at 23,767.45 and 76,059.75, respectively. For the week, the Nifty lost 2.3% while Sensex declined 2.6%, their steepest fall since the week ended 15 May, when the benchmarks had shed 2.7%.
“Indian equities remained volatile amid global pressures and escalating Middle East tensions. Crude oil’s surge past $90 a barrel and the rupee’s decline to 96.96 against the dollar heightened concerns over India’s import bill and accelerated foreign investor selling,” said Mayank Jain, market analyst at Share.Market by PhonePe.
The correction could persist as the market is repricing earnings expectations rather than merely adjusting valuations, said Harshal Dasani, business head at INVasset PMS. “Elevated crude, pressure on the rupee and profitability concerns have weakened near-term sentiment. Domestic liquidity should cushion quality large-cap stocks, but a sustained recovery will require softer crude prices, stable global sentiment and better earnings visibility,” he added.
Realty, banks lead sell-off
Losses were broad-based, with the BSE Realty index falling 4.0% to emerge as the worst performer, followed by a 3% decline in the Bankex. Information technology and oil and gas stocks lost about 2% each.
Defensive pockets offered limited support, the BSE FMCG index gained 0.5%, while the auto index edged up just 0.1%.
Private banks were among the biggest drags, as their high foreign ownership left them vulnerable to overseas selling. Elevated deposit costs, margin pressure and slowing credit growth also weighed on valuations, Jain said.
Persistently high oil prices could add to the pressure on paints, automobiles, consumer durables and aviation, he added.
According to Dasani, power, metals and pharma look best placed, supported by earnings visibility, firm commodity prices and defensive buying. “IT remains the key laggard, while automobiles and consumption face weak urban demand.”
India trails peers
India was among the weakest major equity markets globally during the week. The Nifty fell 2.3%, outperforming only Vietnam that declined 5.6%.
South Korea’s Kospi fell 1.9%, while US equities declined 0.6%. France ended almost unchanged over the week.
Several Asian and emerging markets bucked the trend. China gained 2.7%, Taiwan advanced 2.4%, Brazil rose 1.7% and Hong Kong climbed 1.6%. The UK and Japan also ended higher, gaining 0.74% and 0.73%, respectively.
Jain attributed India’s underperformance to relatively expensive valuations, high foreign ownership and the rupee’s depreciation.
A weaker currency reduces dollar-denominated returns for overseas investors and can encourage global funds to shift towards cheaper or commodity-rich markets. “Until the rupee stabilizes or global risk sentiment improves, foreign portfolio flows into Indian equities are likely to remain cautious,” he said.
Crude boil
Crude oil has emerged as the biggest near-term risk for the markets in India, which imports around 90% of its requirements. Brent breached $90 a barrel in the European spot markets during the week and traded around $93 on Friday, up nearly 24% from its pre-war level of $73.90 on 27 February. In the futures market, Brent crude breached $100 a barrel on Thursday after attacks on two Saudi oil tankers in the Red Sea heightened concerns over supply disruptions.
“Brent above $90 is a macroeconomic headwind for India, but the bigger concern for equities is earnings,” Dasani said. “Aviation, paints, chemicals, logistics and other energy-intensive sectors could face margin pressure, while exporters and upstream energy companies may provide only a partial offset.”
Jain said, “companies may find it difficult to pass higher raw-material and transportation costs on to consumers without affecting demand. Oil marketing companies could also face margin pressure if domestic fuel prices are not adjusted in line with international crude prices.
If crude remains elevated through the first half of FY27, analysts could reduce their estimates for Nifty earnings growth. That, coupled with a delay in potential interest rate cuts, could leave the market vulnerable to further valuation compression, said Jain.