Sensex, Nifty Slip As Crude Nears $97; Key Reasons Behind Market Fall

Benchmark equity indices traded lower on Monday amid escalating tensions between the US and Iran, rising crude oil prices and continued foreign institutional selling. Analysts also flagged the ongoing IPO boom as a key domestic factor weighing on liquidity in the secondary market.

At around 9:45 am, the Sensex was down 171.42 points, or 0.22 percent, at 76,344.01, while the Nifty declined 55.75 points, or 0.23 percent, to 23,841.95.

Rising Crude Prices Add Pressure

Brent crude futures rose 0.4 percent to nearly $97 per barrel after the US said it had struck three Iranian tankers on Saturday, following Iran's launch of ballistic missiles at two US Navy ships.

The latest escalation has raised concerns over potential disruptions to energy supplies and added to inflation worries for global markets.

Iran said it would step up efforts to tackle problems created by US sanctions that have severely affected its economy. A senior Iranian official also warned of a "painful response" if the country comes under further attack.

FII Selling Continues

Foreign institutional investors remained net sellers for a second consecutive session, offloading equities worth Rs 3,111 crore.

Continued foreign outflows have added pressure to Indian equities amid broader global uncertainty and elevated crude prices.

The India VIX, a gauge of expected market volatility, rose nearly 2 percent to around 10.82, signalling increased caution among investors as geopolitical tensions intensified.

The Nifty IT index was among the top sectoral losers, falling 1.84 percent to 30,133.15.

IPO Boom Absorbs Market Liquidity

V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said the market has been drifting lower for four weeks despite positive fundamental developments in the economy and corporate earnings.

He attributed part of the weakness to worsening tensions in the Middle East and the resulting elevated crude prices, but also highlighted the impact of the ongoing IPO boom.

"There are eleven mainboard IPOs hitting the market this week," Vijayakumar said, adding that the mega IPOs from NSE and Jio are also expected this month.

According to him, these large public issues are expected to absorb substantial liquidity from the market, while investors are increasingly focusing on potential listing gains from IPOs instead of the secondary market.

"In brief, the present focus is on the IPO market rather than the secondary market," he said, adding that this trend could continue through September.

Fed Rate Hike Concerns Add To Uncertainty

Vijayakumar also pointed to stronger-than-expected US jobs data, which has increased expectations of a Federal Reserve rate hike in September.

A potential increase in US interest rates could weigh on global equity and bond markets by keeping financial conditions tighter and influencing foreign capital flows.

With crude prices elevated, FII selling continuing and liquidity being directed towards the primary market, Indian equities remain under pressure despite supportive domestic economic and earnings fundamentals.