Futures indices for Sensex and Nifty 50 opened significantly lower on Friday due to a sharp rise in oil prices triggered by escalating tensions in the Middle East, as well as rising bond yields, which intensified concerns about a potential Fed rate hike next week.
The BSE Sensex index began trading lower at 74,309 and continued its decline, reaching a low of 74,160 at the start of trading, representing a drop of 742 points or 1 percent. Similarly, the Nifty 50 index opened in the red at 23,270 and hit a bottom of 23,231, showing a fall of 246 points or 1.05 percent.
Analysts note the strengthening of negative factors for the market related to the escalation of the conflict in the Middle East. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, stated that high crude oil prices are dampening risk appetite. Dwarsh Vakil, Head of Primary Research at HDFC Securities, noted that financial markets are adapting to a higher probability of monetary policy tightening, as federal fund futures indicate a greater than 70 percent chance of a rate hike next week.
By 9:27 AM, the 30-stock Sensex was trading 630 points or 0.84 percent lower, reaching 74,270, while the NSE Nifty index fell by 222 points or 0.94 percent, settling at 23,256.
Sectoral Dynamics and Market Indicators
All sectoral indices experienced declines. The Nifty Realty index fell by more than 3.5 percent, and Nifty Metal corrected by 2.8 percent. The Nifty Bank index also decreased by more than 1 percent. In the broader market, indices reflected the trend of benchmarks, trading in a downward trajectory. Both Nifty Midcap 100 and Nifty Smallcap 100 lost 1.3 percent. The fear index India VIX jumped by more than 6 percent, reaching 12.5. A weak advance-decline ratio indicated selling pressure: 2,377 stocks declined versus 504 that rose, and nearly 90 remained unchanged.
Among Sensex stocks, Tech Mahindra, Infosys, HCL Tech, Bajaj Finance, and ITC showed growth, increasing by up to 1.5 percent. On the other hand, the biggest losers were M&M, Bajaj Finance, Tata Steel, IndiGo, and UltraTech Cement, each falling by more than 2 percent.
Reasons for the Market Decline
Oil Prices
Oil prices have risen and are on track to close the week above $100 per barrel for the first time since mid-May. Brent crude futures jumped by 0.42 percent to $108.1 per barrel, while West Texas Intermediate (WTI) rose by 0.33 percent to $102.8. Vijayakumar emphasized that if high oil prices persist or, worse, increase further, the impact on India's GDP growth and, consequently, corporate earnings will be significant.
Bond Yields
Vijayakumar added that 'the rise in US bond yields is an equally negative factor.' The ten-year yield is now 4.96 percent—the highest level since late 2023. He noted that the approach of this figure to the 5 percent mark is viewed by many as a possible turning point for global equities. 'A correction in the global stock market is likely, but predicting its timing is difficult.'
Primary Market
Furthermore, the rapidly developing IPO market is attracting investor attention. Significant oversubscription and attractive listing gains have drawn millions of investors to the IPO market. This has led to a withdrawal of large funds from the secondary market. Meanwhile, NSE announced the price band and subscription date for the long-awaited IPO.
Asian Stocks Fall
Asian stocks sharply declined as the rise in oil prices and bond yields triggered a wider outflow of capital from risk assets. At the time of the last check, Japan's Nikkei 225 index fell by 2.8 percent, followed by South Korea's Kospi, which dropped by 2.3 percent. Australia's S&P/ASX 200 lost 1.2 percent.
US Markets
US markets closed lower overnight due to stronger producer inflation data, intensifying fears of another rate hike. The Dow Jones Industrial Average fell by 0.6 percent, the S&P 500 dipped by 0.5 percent, and the Nasdaq Composite finished down 0.65 percent.
ECB Raises Interest Rates
European stocks fell to two-month lows after the European Central Bank raised interest rates for the second time this year to combat rising inflation. The ECB's key deposit rate is now 2.5 percent, which is at the upper end of the 'neutral' range, which politicians believe neither restricts nor stimulates economic growth. Dwarsh noted that the ECB raised the rate in line with expectations, as the conflict continues to fuel inflationary pressures. The Bank of Japan is expected to raise rates to 1.25 percent after the highly anticipated meeting next Friday.
