Benchmark indices Nifty and Sensex traded marginally lower on Tuesday as sentiment took a hit after the US attacked the southern part of Iran on Monday, reigniting fears of a prolonged war with the Middle East nation.

30-share Sensex started at 76,224, about 245 points lower or 0.32%, while 50-share Nifty at 24,004, down 27 points. IndiGo, Bharti Airtel, Sun Pharma, Trent, Titan Company and UltraTech Cement were the major laggards. On the flipside, Infosys, Tech Mahindra, TCS, BEL, and HCL Tech were the top gainers.

The Nifty Midcap 100 and Smallcap 100 outperformed, gaining 0.14% and 0.70%, respectively.

Expert views

VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said that although negotiations to end the West Asia crisis are continuing, there are still no clear signs of an immediate resolution. He noted that the recent “self-defence strikes” by the U.S. in southern Iran have weighed on the ongoing talks, though markets do not appear to view the development as the beginning of another major round of military action. According to him, this is reflected in Brent crude prices remaining around $98 after having corrected more than 20% from their peak.

Vijayakumar also highlighted the strong risk appetite in the markets, noting that equities have rallied whenever there are positive developments suggesting progress towards ending the conflict and easing crude oil prices. He pointed to Monday’s 1,073-point rally in the Sensex as evidence of investor optimism and confidence in the resilience of the economy. He added that a resolution to the conflict along with a meaningful correction in crude prices could substantially ease the macroeconomic pressures currently facing the economy, which, he said, appears to be the message markets are signalling.

Global markets

South Korea’s KOSPI touched a fresh record high of 8,094.90 in early trading, while the small-cap Kosdaq trimmed some gains but remained up 1.44%.

Japan’s Nikkei 225 declined 0.61% as investors booked profits, while the broader Topix index slipped 0.19%. The Nikkei 225 had crossed the 65,000 mark for the first time on Monday during thin holiday trading in Asia. Australia’s S&P/ASX 200 fell 0.50%, while in Greater China, the CSI 300 opened flat, while Hong Kong’s Hang Seng Index slipped 0.49% after markets were shut on Monday for a public holiday.

Wall Street remained shut Monday on account of Memorial Day.

Crude impact

Brent crude futures rose nearly 2% on Tuesday, a day after hitting a two-week low, after the U.S. military launched strikes in southern Iran, describing the action as defensive in nature. The developments kept markets tense as hopes of a deal to end the ongoing conflict remained uncertain.

The U.S. Central Command said it had carried out strikes on targets in southern Iran, including boats allegedly attempting to lay mines and missile launch sites. According to the military, the strikes were aimed at protecting U.S. troops from threats posed by Iranian forces.

Brent crude gained $1.40, or 1.5%, to trade at $97.56 a barrel, recovering after a steep 7% fall in the previous session. U.S. West Texas Intermediate crude traded at $91.25, marginally above Monday’s last traded level, though still down $5.30, or 5.5%, from Friday’s close. There was no official settlement on Monday because of the U.S. Memorial Day holiday.

FII/DII Tracker

On the institutional front, Foreign Institutional Investors (FIIs) bought equities worth a little over Rs 822 crore on May 25, while Domestic Institutional Investors (DIIs) were net buyers to the tune of Rs 3,857 crore.

Rupee vs dollar

The Indian rupee opened 0.16% lower at 95.38 against the U.S. dollar on Tuesday, compared with its previous close of 95.23.

For the current recovery to sustain, experts say markets are likely to require continued moderation in crude oil prices alongside stronger and more consistent institutional inflows in the coming sessions.