Geopolitical tensions hit Indian equities as rupee breaches 96/dollar
Escalating West Asia tensions drove oil higher and the rupee past 96 per dollar, crushing inflation-sensitive Indian stocks and delaying the corporate earnings recovery.
Escalating tensions in West Asia drove Indian equities lower on Tuesday as surging crude oil prices combined with a sharp depreciation in the rupee to threaten corporate profit margins. The Indian currency breached the 96-per-dollar mark, raising alarms about imported inflation and higher input costs across the broader economy.
The sell-off was concentrated in sectors most vulnerable to rising costs. "The fallout was most visible in inflation- and cost-sensitive pockets; auto, financials, and realty led the market lower, while pharma bucked the trend, benefiting as investors sought shelter in defensives amid the volatility," said Vinod Nair, Head of Research at Geojit Investments.
Sustained foreign fund outflows compounded the domestic selling pressure, resulting in overwhelmingly negative market breadth. Of the 3,410 stocks traded on the NSE, 2,278 declined while just 1,022 advanced, dragging major indices lower despite a positive start to the domestic first-quarter earnings season.
The geopolitical risk premium was evident across global markets. In Europe, the STOXX 600 index dipped 0.04% to hover near one-week lows, with investors parsing results from BP and Ericsson for signs of conflict impact. US markets offered a split picture, as major banks capitalized on the very volatility weighing on other sectors.
Goldman Sachs rallied 6.5% after volatility from the Middle East conflict helped drive its equities business to a record, boosting second-quarter profit beyond expectations. JPMorgan Chase, Citigroup and Bank of America also posted higher profits, gaining 1.8%, 1.5% and 1.4% respectively, while Wells Fargo slipped 0.3%.
Outside the banking sector, US tech struggled. IBM shares tumbled nearly 24% after the firm forecast preliminary second-quarter revenue below estimates, putting the stock on pace for its worst single-day drop since the 1987 Black Monday crash.
On the technical front, the Nifty 50 remained range-bound after a gap-down opening coinciding with the expiry of weekly options. "The index also held above the critical 50 EMA, indicating underlying strength. In the short term, the outlook is likely to remain positive as long as the index stays above 23,950," said Rupak De, Senior Technical Analyst at LKP Securities.
De noted that a move above 24,250 to 24,300 is possible, but warned that "a decisive fall below 23,950 could weaken the current bullish setup and trigger a phase of consolidation."
Individual Indian stock action reflected the defensive rotation. Biocon, Adani Green Energy, and Welspun Corp hit 52-week highs, while heavyweights like Vedanta, ITC, and PI Industries slumped to 52-week lows. Kalyan Jewellers led the NSE in both turnover and volume activity, while Vodafone Idea topped volume charts with 29.01 crore shares traded.
Looking ahead, market focus is shifting to the US Federal Reserve Chair's upcoming remarks. "All eyes are now on the US Fed Chair, whose upcoming remarks could set the tone for global rate expectations," Nair said, adding that while Q1 earnings are rolling on positively, the rapid increase in geopolitical risk has dampened sentiment.
