Why Markets Recovered From Day’s Low Despite US-Iran Tensions, Crude Surge

Benchmark equity indices staged a partial recovery on Wednesday after opening sharply lower, as value buying at lower levels and an easing volatility gauge helped limit losses. The selloff at the open was triggered by heightened US-Iran tensions, which pushed crude oil prices higher, revived inflation concerns and lifted global bond yields.

At 3 pm, the Sensex was down 553.54 points, or 0.72 percent, at 76,390.74, while the Nifty 50 declined 191.65 points, or 0.79 percent, to 23,865.15. Market breadth remained weak, with 1,559 shares advancing, 2,372 declining and 152 unchanged.

Value Buying Emerges at Lower Levels

Value buying emerged after the Nifty slipped below the 23,800 mark during intraday trade. The Sensex recovered around 400 points from the day's low, while the Nifty moved back above the psychologically important 23,900 level.

The recovery was also visible in the PSU banking space, with the PSU Bank index rising nearly 1.5 percent from its day's low.

However, several sectors remained under pressure. The auto sector was among the worst performers, with Eicher Motors falling more than 4 percent and emerging as the biggest laggard on the Nifty 50. Mahindra & Mahindra, Bajaj Auto, Maruti Suzuki India and Tata Motors Passenger Vehicles also declined 1-2 percent.

IT stocks including Infosys, Tata Consultancy Services, Wipro and HCL Technologies fell 1-2 percent, while Shriram Finance declined nearly 2 percent.

Energy Stocks Buck Trend

Energy stocks bucked the broader market weakness as the sharp rise in crude prices supported upstream and energy-linked companies.

Coal India emerged as the top gainer on the Nifty 50, rising 3.55 percent to Rs 415.85 from its previous close of Rs 401.60. Around 2.84 crore shares changed hands, with the traded value standing at Rs 1,186.16 crore.

Oil and Natural Gas Corporation also gained nearly 1 percent. Coal India and ONGC were among the top gainers across the Nifty 200 and Nifty 500 indices.

On the other hand, Eicher Motors and Hero MotoCorp were among the worst performers across both indices, falling around 4 percent. Hero MotoCorp came under pressure after reporting a 3 percent year-on-year increase in August sales volume.

Higher crude prices are particularly negative for the automobile sector as they can increase input costs for tyre and component manufacturers, putting pressure on margins.

The India VIX, a gauge of market volatility, eased from an intraday high of 12.11 to 11.73. The moderation suggested that immediate selling pressure had eased somewhat despite the broader risk-off environment.

US-Iran Tensions, Crude Remain Key Risks

The recovery came against the backdrop of renewed geopolitical tensions after the US and Iran exchanged strikes, raising concerns over potential disruptions to oil flows through the region.

Brent crude surged 5 percent overnight to around $96 a barrel, adding to inflationary concerns and putting pressure on risk assets. Rising US bond yields also remained a key headwind for equities.

V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said the market remains caught between strong domestic fundamentals and external risks.

He said India's strong Q1 GDP numbers, robust GST collections, credit growth, automobile data and improving earnings prospects remain important domestic tailwinds. However, the escalation in the US-Iran conflict and the resulting rise in Brent crude are negative for market sentiment.

Vijayakumar noted that the rise in crude prices may not pose a major threat given India's current account deficit of around 0.5 percent and foreign exchange reserves of about $730 billion.

According to him, the bigger risk is the rise in US bond yields. If the US 10-year yield reaches 5 percent, it could trigger a significant correction in global equity markets.