Indian equities took a heavy beating as US President Donald Trump’s ongoing war in Iran drives energy prices sharply higher, forcing investors to price in a higher risk of an economic slowdown.
The NSE Nifty 50 Index slumped 3.3% on Thursday — its biggest one-day loss since June 2024 — amid fears that rising input costs will hurt consumer demand and squeeze company profits. The ferocity of the selloff showed up in the NSE India Volatility Index, which logged its biggest jump since the start of the Middle East conflict.
“There is no confidence because we are in a cycle where oil prices can push up inflation, leading to the central bank considering rate hikes,” said Phanisekhar Ponangi, Co-Founder, Mavenark Advisors. “We are suggesting investors to take profit from companies that have benefited from commodities and stay with firms that are market leaders.”
Geopolitical tensions have hit markets just as India underperformed regional peers by the widest margin in decades last year, tempering hopes of a quick rebound. The pessimism has spilled into currency markets, with the rupee hitting record lows amid accelerating outflows from equities and bonds.
Thursday’s selloff was exacerbated by the drop in HDFC Bank — which has the highest weight on the benchmark. The lender’s shares slid 5.3% to the lowest level in almost two years after its chairman resigned, citing ethical differences, prompting management and the Reserve Bank of India to reassure investors on governance.
Brent surged to nearly $120 a barrel following Iran’s attacks on key energy infrastructure in the Middle East, stoking fresh inflation concerns for India’s import-heavy economy. That shock has erased over $600 billion from local equities this year, as investors brace for a hit to company earnings.
Still, Indian equities have held up relatively better than some regional peers such as Indonesia and Vietnam, thanks to domestic institutions who have poured about $10 billion this month. The Nifty is down 8.6% in March, in-line with the MSCI’s Asia gauge.
Even so, the threat to India’s projected economic growth of over 7% from the disruption in energy supplies will keep sentiment under pressure. Global funds have pulled about $7.8 billion from local shares so far this month, and $939 million from bonds.
Wall Street banks including Morgan Stanley and Citigroup Inc. have turned bearish on local stocks. Citi flagged risks to earnings for the financial year ending March 2027 from the Middle East crisis, while Morgan Stanley downgraded the country to equal-weight from overweight status.
The Nifty may drift toward 22,850, potentially falling further to 22,700 level in the short term, according to SBI Securities Ltd. The gauge closed at 23,002.15.
“Markets appear to be in a phase of heightened fragility, where sentiment is being driven by rapidly evolving geopolitical developments and sharp rise in crude prices,” said Siddhartha Khemka, head of research for Motilal Oswal Financial Services’ wealth division.
Written by: Alex Gabriel Simon and Ashutosh Joshi @Bloomberg
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