Indian stock market erased all morning gains to tumble into the deep red on Monday afternoon, with Sensex and Nifty tumbling 0.7% each as strong FII selling, Iran-US war uncertainties and other factors dampened investor sentiment.
Sensex tumbled around 508 points to close at 74,267, while Nifty 50 declined more than 165 points to end the session at 23,382. From their respective day’s highs, Sensex has fallen around 1,100 points, and Nifty has dropped 351 points. This came as India VIX, which measures volatility in markets, gained more than 2% to 16.54 in the afternoon.
ITC and Hindustan Unilever (HUL) shares led losses on the Sensex, falling nearly 3% each. NTPC, Mahindra & Mahindra (M&M), Kotak Mahindra Bank, Trent, UltraTech Cement, Bajaj Finance, and L&T shares followed, dropping around 2% each. Bucking the trend. IT stocks, including Tech Mahindra, Infosys and TCS, jumped 1-4%.
Broader markets also slipped into the deep red, with Nifty Midcap 100 and Nifty Smallcap 100 indices falling 1% each. Sectorally, Nifty FMCG crashed more than 2% to lead losses. Nifty IT meanwhile jumped nearly 3%. Around 2,201 stocks declined on the NSE, while 1,151 stocks advanced and 99 remained unchanged.
1) Iran-US conflict escalates
US and Iran exchanged military strikes on Monday as negotiations between the two sides, which have been involved in the raging conflict since late February, stalled, with Tehran again insisting that any peace deal must also cover Israel's escalating offensive into Lebanon.
The United States said that it has bombed radar and drone sites in Iran after Tehran shot down an American drone over the weekend. Iran then said it launched a strike of its own, and Kuwait reported incoming fire. This continues to make the ceasefire between Iran and the US fragile.
As a result of the rising tensions, oil prices jumped. Brent crude futures gained nearly 4% to $94 per barrel, while WTI Crude surged more than 4% to trade at nearly $91 per barrel. The rising military strikes in the geopolitically fragile Middle East raised worries over the prolonged closure of the Strait of Hormuz, a narrow 33-kilometre waterway connecting the Persian Gulf with the Gulf of Oman that handles over 20% of the world’s daily oil and gas shipments.
Foreign investors remained strongly bearish on the Indian stock market, net selling Indian equities worth Rs 21,105.86 crore on Friday, according to data on the NSE. This is the highest single-day net selling by FII in May.
US Treasury yields inched higher amid the latest geopolitical developments. The yield on benchmark US 10-year notes rose to 4.469%, while the 30-year bond yield rose to 4.994%. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose to 4.039%. Rising bond yields typically make bonds more attractive to investors, which in turn can lead to a downturn in markets.
What lies ahead?
The frontline indices returned to the consolidation zone they had established in the third week of May, said SBI Securities. It noted that IT stocks have emerged as relative outperformers, with frontline names such as Infosys, TCS, and Tech Mahindra witnessing strong buying interest, thereby cushioning the broader market decline to some extent.
“Coming to Nifty, the zone of 23,430-23,450 will act as a crucial support for the index, while the resistance lies in the zone of 23,670-23,690. On the downside, if the index slips below the level of 23,430, then the next support is placed in the zone of 23,200-23,100. In the event of a surge above 23,690, the index can experience an extension of the rally towards 23,890,” it said.
