India's Nifty falls for second day as oil rally hits large caps
Escalating Middle East tensions pushed Brent crude near $90 a barrel, driving foreign investors out of Indian large-cap stocks and leaving the market trapped in a narrow trading range.
India's benchmark indices fell for a second consecutive session as geopolitical risks resurfaced. The Nifty 50 declined 51 points, or 0.21%, to settle at 24,187.70, while the Sensex dropped 238 points, or 0.31%, to 77,470.11.
The selloff was driven by a surge in crude oil prices after Iran-backed Houthis threatened to impose a naval blockade on Saudi Arabia. Brent crude for September delivery traded near $90 per barrel at the close, reviving global inflation concerns and expectations of further US Federal Reserve interest rate hikes.
These macroeconomic headwinds triggered a resumption of foreign portfolio investor (FPI) selling, which had briefly paused in early July. Heavyweight financial and technology stocks bore the brunt, with HDFC Bank, Infosys, and State Bank of India leading the Nifty 50 lower.
Despite the headline weakness, market breadth remained relatively resilient, with 33 Nifty 50 stocks closing higher. Investors rotated into smaller companies, pushing the Nifty Midcap 100 up 0.30% and the Smallcap 100 index 0.53%. Auto, realty, and metal sectors posted strong gains, while PSU banks, IT, and oil and gas lagged.
The outperformance of mid-caps is being underpinned by expectations of healthy first-quarter earnings. "At present, the broader market is trading in a mixed range, reflecting large caps' underperformance driven by moderating inflows amid rising geopolitical risks and higher crude oil prices," said Vinod Nair, Head of Research at Geojit Investments.
However, Nair cautioned that elevated valuations pose a risk if input costs remain high. "While this segment’s elevated valuations compared to large caps warrant caution, underlying business conditions are expected to remain healthy at least through the first half of FY27. However, sustaining this momentum will require the ongoing spike in input costs to normalise as demand growth may tend to become flattish in the second half of FY27," he said.
Technically, the Nifty remains stuck in a tight consolidation band. Vipin Kumar, AVP-Research at Globe Capital Market, noted that "the Nifty has been in a narrow consolidation range of 24,530–23,800 so far in July. Within this consolidation range, the index has been hovering in the confluence of its 50-day EMA (24,000 spot) and 200-day EMA (24,430 spot)." Kumar warned that "a decisive break is needed for a sustainable move beyond the 23,800–24,600 spot zone."
In the near term, Sudeep Shah, head of technical and derivatives research at SBI Securities, said "the 24,270-24,300 zone remains the immediate hurdle for Nifty, and a sustained move above this resistance band could trigger an extension of the ongoing pullback towards 24,450 in the short term. On the downside, Shah believes the 20-day EMA region of 24,100-24,050 may provide immediate support."
