Bank Nifty falls 2% as Middle East conflict drives oil surge, PSU banks lead losses: What lies ahead?

Bank Nifty falls 2% as Middle East conflict drives oil surge, PSU banks lead losses: What lies ahead?

• Bank Nifty fell over 2% as oil hit a 19-month high
• PSU banks led losses; Bank of Baroda dropped 5%
• Rising oil prices raise inflation and growth concerns for India

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Bank Nifty fell over 2% on March 4 as escalating US-Israel clashes with Iran lifted oil to a 19-month high, disrupted Middle East energy shipments and stoked fears of a prolonged conflict.

PSU bank stocks led the losses on the index with Bank of Baroda, Canara Bank, Union Bank of India declining 5%, 4.43% and 4.2%, respectively.

The Indian rupee weakened past 92 per dollar for the first time on Wednesday, with traders citing likely intervention by the central bank to avert a steeper fall in the face of an intensifying war in the Middle East.

The rupee fell to 92.17 to the dollar, down 0.7%, eclipsing its previous all-time low of 91.9875 hit in January. Global markets tumbled on worries that the war could deliver an energy shock that raises inflation and delays interest rate cuts.

An analyst said that the crude rise could stoke economic risks for India.

"With the war escalating and crude rising, markets are going into a period of heightened uncertainty. Nobody knows how long this conflict will go on and what will be the extent of the havoc it could wreck. From the perspective of India, which relies on imports for around 85% of her oil requirements, the real concern is the potential inflation and its consequences on economic growth. From the market perspective, the impact of potentially widening trade deficit, depreciating currency, higher inflation and perhaps lower growth is the real issue. If this fear materialises, corporate earnings will be impacted. This is the fear in the market. This fear will materialise only if the war lingers for long. If it ends in, say 3 to 4 weeks, things will be back to normal," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

Brent crude futures rose or 1.4% to $82.57 a barrel by 0408 GMT, after closing at its highest since January 2025 on Tuesday. They have gained nearly 17% in four sessions.

Higher oil prices and trade disruptions weigh on large importers of the commodity such as India.

"For India, any sharp spike in oil prices has implications for current account deficit, fiscal deficit and inflation, while also placing downward pressure on the rupee," Macquarie analysts, led by Suresh Ganapathy, said.

Nifty heavyweights HDFC Bank and ICICI Bank lost 1.1% and 1.7%, respectively.

At 11:15 am on March 4, Bank Nifty index was trading 2% lower at 58,635.75 while benchmark indices were trading 1.7% lower.

Immediate support for the sectoral index is seen around 59,000–58,700, said Aakash Shah, Technical Research Analyst at Choice Equity Broking Private Limited.