Indian equity benchmarks, the Nifty50 and BSE Sensex, witnessed a sharp decline of over 1% in Wednesday's trade as escalating tensions between the United States and Iran dampened investor sentiment and pushed crude oil prices higher. The sell-off erased more than Rs 3 lakh crore from the combined market value of BSE-listed companies, bringing the total market capitalization down to nearly Rs 459 lakh crore.
Key Reasons Behind the Market Decline
1. US-Iran Tensions
Geopolitical uncertainty in the Middle East remained elevated despite recent remarks by US President Donald Trump suggesting that Washington and Tehran were nearing a resolution to the conflict and the restoration of normal traffic through the Strait of Hormuz. On Tuesday, the US military announced that it had intercepted and neutralized multiple Iranian missile and drone attacks across the Gulf region. Additionally, the US Central Command (CENTCOM) reported conducting defensive strikes on Iran's Qeshm Island.
2. Surge in Crude Oil Prices
Brent crude futures advanced nearly 1% to trade close to $97 per barrel, while the US benchmark West Texas Intermediate (WTI) crude also gained about 1%, hovering around $95 per barrel. The rise in oil prices added to concerns over India's import costs and inflation trajectory.
3. Rupee Under Pressure
The Indian rupee weakened by 14 paise against the US dollar in early trade on Wednesday, slipping to 95.50. According to Jateen Trivedi, Vice President – Research Analyst, Commodity and Currency, at LKP Securities, rising crude oil prices have fueled concerns about India's import costs and inflation, prompting caution in the currency market.
4. Persistent Foreign Investor Outflows
Selling by foreign institutional investors (FIIs) showed no signs of abating, adding to the pressure on domestic equities. On Tuesday alone, overseas investors offloaded Indian shares worth nearly Rs 8,363 crore.
5. US Bond Yields Edge Higher
US Treasury yields moved up amid renewed geopolitical uncertainty. The yield on the benchmark 10-year Treasury note rose to 4.457%, while the 30-year bond yield climbed to 4.97%. Higher bond yields generally enhance the attractiveness of fixed-income investments, often prompting investors to shift funds away from riskier assets such as equities, creating additional pressure on stock markets.
6. Profit-Booking in IT Stocks
The weakness in the broader market was amplified by selling in information technology stocks, which had delivered strong gains in recent sessions despite heightened volatility. After such a sharp run-up, investors appeared to lock in profits in several large-cap technology counters, contributing to the day's downturn.
Expert Insights
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, noted that the latest flare-up in West Asia has once again pushed Brent crude prices close to the $97-per-barrel mark, offering little relief from energy-related pressures facing India. He added that market participants would closely track the Reserve Bank of India's commentary and policy actions scheduled for June 5.
Vijayakumar also highlighted the continuing strength in semiconductor-driven markets such as South Korea and Taiwan. By comparison, he said India's corporate earnings outlook for FY27 could face moderate pressure from slower economic growth and elevated inflation. However, he pointed out that steady participation from retail investors continues to provide support, with domestic investors remaining active despite multiple headwinds.
(Disclaimer: Recommendations and views on the stock market, other asset classes or personal finance management tips given by experts are their own. These opinions do not represent the views of Bharat Horizon.)
