Middle East Tensions Drag Markets Lower; Sensex Drops 600 Points, Nifty Slides

Benchmark indices Sensex and Nifty opened sharply lower on Monday as renewed hostilities in the Middle East and Iran's move to shut the Strait of Hormuz triggered a spike in crude oil prices, raising concerns over inflation, India's import bill and corporate earnings.

The BSE Sensex fell 626.40 points, or 0.81%, to 76,942.99, while the NSE Nifty50 declined 184 points, or 0.76%, to 24,022.90 in early trade. The indices had opened lower at 76,963.35 and 24,039.40, respectively, before extending losses.

Selling was broad-based, with all 16 sectoral indices trading in the red. The Nifty 100, Nifty 200 and Nifty 500 also slipped around 0.7%. Midcap and smallcap stocks declined but outperformed the benchmark indices.

India VIX, the market's volatility gauge, jumped more than 10%, reflecting heightened investor nervousness.

Crude Oil Rally Hits Market Sentiment

Investor sentiment weakened after the US and Iran exchanged heavy missile and drone attacks over the weekend. Tehran said it had again closed the Strait of Hormuz, a key global oil shipping route, intensifying fears of supply disruptions.

The escalation pushed crude oil prices sharply higher. Brent crude climbed more than 4% to $79.12 a barrel, while West Texas Intermediate (WTI) crude rose over 4% to $74.33.

Higher crude prices remain a major concern for India, which imports the bulk of its crude oil requirements. A sustained rise in oil prices could increase the country's import bill, fuel inflationary pressures and weigh on corporate earnings.

Financials, Metals Lead Declines

Financial and metal stocks were among the worst performers in early trade. The Nifty Financial Services index declined more than 1%, while the Nifty Metal index also fell over 1%.

Among Sensex constituents, Tata Steel dropped 2.38%, followed by InterGlobe Aviation (2.07%), Bajaj Finance (1.38%), Bharat Electronics (1.33%), UltraTech Cement (1.30%), Larsen & Toubro (1.19%) and Titan (1.13%). HDFC Bank, Maruti Suzuki and Bajaj Finserv also traded over 1% lower.

IT stocks, however, showed relative resilience after TCS' earnings-led rally on Friday. TCS gained 1.25%, HCLTech rose 0.89%, NTPC added 0.81%, while Tech Mahindra traded marginally higher.

Crude Prices Remain The Key Trigger

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the trajectory of crude oil prices would determine the market's near-term direction.

"The back and forth movement in the West Asia crisis has become the new normal. The attempt by Iran to weaponise geography has negative implications for energy importers like India. And, President Trump's totally inconsistent stand vis-a-vis Iran has rendered stability a thing of the past. We don't know how this crisis will pan out.

"From the market perspective, particularly for India, the price of crude is the crucial factor. There is no panic in the oil market like in March. Brent is currently trading around $79. So long as Brent trades below $90, the market won't be impacted significantly. But if Brent shoots up above $90, there can be a significant correction in the market. So, watch out for the price of crude.

"A positive factor that is imparting resilience to the market now is the FII inflows. During the last eight trading days, FIIs were buyers on five days. The weakness in the chip trade in South Korea is turning out to be positive for India. FIIs are reducing concentration risk in chip stocks and moving money to more stable markets like India. If this trend sustains, the Indian market will continue to remain resilient," he said.