Indian stock markets experienced a significant downturn on Monday, with the Nifty 50 and Sensex indices reaching their lowest points in nearly six months. This drop is linked to a rise in crude oil prices above $100 per barrel, fueled by fading hopes for a diplomatic resolution between the US and Iran.
The Nifty 50 fell by 1.6%, closing at 22,780.25, marking its lowest level since April 2. Similarly, the Sensex decreased by 1.5%. This decline is part of a broader risk-averse trend affecting global markets, with major Asian markets also showing losses.
Brent crude futures increased to approximately $107 per barrel, having touched $108.83 earlier, as concerns over a prolonged disruption in the Strait of Hormuz intensified. The uncertainty surrounding energy supplies has heightened fears of inflation, particularly affecting India, which imports about 90% of its oil needs. A sustained increase in oil prices could lead to a higher import bill, escalate inflationary pressures, and impact corporate profit margins and economic growth.
In the Indian market, the Nifty has fallen approximately 13% this year, with the Nifty PSU Bank index down by 3.2%. Realty and oil and gas stocks also suffered significant losses. Additionally, the Indian rupee weakened by 0.2% to 95.9850 against the US dollar.
Rising global inflation and increased US bond yields are exerting additional pressure on emerging markets. The US 10-year Treasury yield is nearing 5%, raising concerns about potential capital outflows and limiting central banks’ ability to maintain lower interest rates.
Market participants are now keenly observing the Reserve Bank of India’s forthcoming policy review for insights into interest rates, inflation, and economic growth. The continued strength in crude oil prices could further pressure the Indian rupee and influence the central bank’s policy decisions.