AgenciesPanic Buying
The local currency ended up as the continent’s worst performer against the dollar Wednesday, while bond yields climbed the most in more than three months.
The BSE Sensex dropped 1,677.12 points, or 2.15%, to close at 76,503.60, posting its biggest single-day drop since March 27. The Nifty 50 fell 516.65 points, or 2.12%, to end at 23,882.05, the highest decline in a day since March 23.
“The sudden escalation in geopolitical tensions was unexpected and looks like it is likely to remain a near-to-medium-term headwind for the market,” said Shrikant Chouhan, head, equity research, Kotak Securities.
The rupee closed at 95.56, versus 94.96, per dollar. Panic buying dominated market moves as Brent crude oil prices leapt to about $80 per barrel as intervention by the central bank sought to contain excess volatility, traders said.
“As soon as the statement from Trump hit markets, panic buying began because we do not know how crude would behave,” said Dilip Parmar, currency research analyst, HDFC Securities. “There was dollar buying from oil companies and foreign investors, and their buying outweighed interventions by the central bank.”
The rupee traded at an intraday low of 95.61, a level last seen on June 11, while the Reserve Bank of India (RBI) sold dollars near these levels to prevent a further fall, traders said. The currency is expected to remain in the range of 95.25 to 96.00 on Thursday.
Separately, the 10-year benchmark bond yield settled at 6.76%, up 7 basis points, logging its sharpest rise since April 2. The hardening of yields came after four consecutive days of easing in the benchmark yield.
One basis point is a hundredth of a percentage point.
Escalation Seen
The US President said fresh strikes were likely on Wednesday night following Iranian attacks on US bases in the Gulf, newswires reported. Tehran said it had attacked the military sites in Bahrain and Kuwait after US forces struck Iranian targets in response to attacks on tankers in the Strait of Hormuz. The US said Iran attacked ships in the Strait of Hormuz, prompting retaliation. The US Department of the Treasury also revoked the temporary suspension of sanctions on Iranian oil, which is seen pushing crude prices higher.
“If we make a deal with Iran, I’m not sure that will stick,” Trump said, “because I found them to be very dishonourable people.” But Trump said he did not expect a return to full-fledged war, and it was not immediately clear whether the negotiations on reaching a permanent deal would continue.
September Brent was trading some 8% higher at around $80 a barrel, with the West Asia conflict reigniting after the US and Iran exchanged attacks, the first escalation since the two nations signed an interim peace deal in June.
Elsewhere in Asia, South Korea’s Kospi fell over 5% on Wednesday, with the index declining more than 20% from record levels in late June, indicating the market is in bear territory. The sell-off happened despite heavyweight Samsung’s strong earnings, raising questions about the durability of the AI-linked stock market rally.
In India, the weakness extended to the broader market, with the Nifty Midcap 150 and Nifty Smallcap 250 indices falling 1.63% and 2%, respectively. Market breadth remained decisively negative, with 3,331 of the 4,454 stocks traded on the BSE ending lower, while 971 advanced.
On Wednesday, foreign portfolio investors net bought shares worth a net Rs 1,960 crore, taking their net purchases in July to Rs 2,502 crore. Domestic institutional investors invested a net Rs 790 crore, lifting their July inflows so far to Rs 7,187 crore.
Shares of companies sensitive to crude price moves led the declines. HPCL fell more than 4.5%, while BPCL and Indian Oil Corporation lost about 3% each. Reliance Industries also declined nearly 2.5%. Airlines, automobile manufacturers and paint companies also came under pressure on concerns that higher crude prices would squeeze margins through increased input costs.
According to Sunny Agrawal, head of fundamental research, SBI Securities, the immediate trigger for the sell-off was Trump’s statement that a peace deal with Iran was no longer on the table. However, he added that such market reactions have historically proved short-lived.
“The market reacted sharply, but if we look at the next two to three days, history suggests that such statements are often followed by a reversal or clarification within 24 to 48 hours,” Agrawal said. “The Street will likely wait for more clarity from Trump’s team on whether a peace deal is still possible or if the situation is once again moving toward a full-scale conflict.”
Analysts said crude oil prices would remain the key variable for markets. If Brent stays below $80 a barrel, the broader market structure could remain intact despite heightened near-term volatility.
