Benchmark indices Sensex and Nifty fell over 1.2% on March 2 as the West Asia war pushed crude prices higher and triggered a flight to safe havens, weighing on investor sentiment.
The Nifty 50 dropped 1.24% to a one-month low of 24,865.70 while the BSE Sensex shed 1.29% to 80,238.85, lowest in six months. However, markets posted partial recovery after falling as much as 2% a day ahead of a market holiday on account of Holi.
InterGlobe Aviation fell over 6% to be the worst-hit stock in the Nifty 50. The stock was the worst hit in the Nifty 200 as well. Shares of Larsen & Toubro ended nearly 5% lower. Adani Ports and Special Economic Zone and Asian Paints ended around 3% lower each.
Financial services shares of Bajaj Finserv, Jio Financial Services, Shriram Finance, Bajaj Finance, and HDFC Life Insurance Co. ended 1-3% lower. Stocks of State Bank of India and Axis Bank closed 1% lower each. Automobile companies Mahindra & Mahindra, Eicher Motors, Bajaj Auto, Maruti Suzuki India, and Tata Motors Passenger Vehicles ended 2-3% lower as well.
Fourteen of the 16 major sectors logged losses. The broader small-caps and mid-caps fell 1.8% and 1.6%, respectively.
Key factors behind market crash:
Air strikes by Israel and the U.S. on Iran over the weekend resulted in the death of Iran's Supreme Leader Ayatollah Ali Khamenei. Iran fired missile barrages across the region in retaliation, risking dragging its neighbours into the conflict.
Stocks of oil marketing companies, paint and tyre makers, aviation companies and chemical manufacturers all fell on rising crude oil prices.
The May futures of ICE Brent Crude Oil hit a one-month high of $82.37 per barrel Monday. At 15:57 IST, the Brent Crude Oil May Futures were at $78.71 per barrel, up 8%.
Brent crude futures climbed to about $82.40 a barrel, their highest in 14 months, in the first trading after the U.S.-Israeli strikes on Iran over the weekend killed Tehran's Supreme Leader Ali Khamenei, jolting markets and deepening uncertainty for the global economy.
Tehran said it has closed navigation through the Strait of Hormuz, through which nearly 20% of global oil flows and over 40% of India's crude imports transit, prompting governments and refiners to assess oil stockpiles.
VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited said, "The uncertainty related to the war in West Asia will loom large over the market in the near-term. The major risk from the market perspective is the energy risk arising from the surge in crude. Indications are that a sharp spike in crude by, say 20%, is likely only if the Hormuz Strait is closed, obstructing oil transport through the strait. There is no official confirmation of this yet. If Brent crude remains around $76 equity markets may remain weak but are unlikely to witness big crash.
"Experience tells us that panic selling during during a crisis is wrong strategy. Investors should refrain from selling and watch how things evolve. Data from crises during the last many decades tells us that an event like the present crisis will not have any impact on the market six months later. This is the takeaway from the market behaviour after the recent crises like the Covid crisis, Russia-Ukraine war and the Gaza conflict. The ongoing West Asian crisis is unlikely to be different. However, since a war can spring unexpected surprises, investors have to be cautious. Weakness in the market can be used to slowly accumulate high quality stocks in domestic consumption themes like banking, automobiles, capital goods and defense."
"For India, with close to 90% dependence on imported crude, any sustained rise in Brent prices quickly feeds into higher fuel costs, broader inflation, and a wider current account deficit," said Rajeev Sharan, head of criteria, model development and Research at Brickwork Ratings.
"This complicates the RBI's disinflation path and could delay rate cuts. The conflict premium will ease only when there is assurance that vital oil routes such as the Strait of Hormuz remain open," Sharan said.
2. Weak Rupee
Indian rupee depreciated against the dollar while government bond yields rose after U.S., Israel strikes on Iran raised the risk of protracted conflict in the Middle East.
Asian currencies were down between 0.2% to 0.6% on Monday while MSCI's gauge of Asia-Pacific equities fell 1.5%. The dollar index was down 0.2% at 97.9.
Traders reckon that the Reserve Bank of India will likely step in to avert a sharp slide in the rupee which could put it back in touching distance of its all-time low of 91.9875 hit earlier in the year, reported Reuters.
3. FII selling
Foreign investors (FIIs/FPIs) net sold Rs 7,536.4 crore worth of Indian equities on Friday, February 27. At the same time, domestic institutional investors (DIIs) net bought shares worth Rs 12,292.8 crore, according to provisional exchange data.
"There are variations in sectoral investments in February. FPIs had sold heavily in IT stocks due to the Anthropic shock and the continuing weakness in this segment. But they were buyers in financial services and capital goods.
"The conflict in the Middle East has triggered a risk on situation in financial markets. It remains to be seen how the conflict will evolve and impact crude and currency markets. FIIs are likely to wait and watch how things evolve before making further commitments in emerging markets," said Vijayakumar.
4. VIX surges
India VIX, the volatility gauge, rose over 25% to trade at nine-month high of 17.13.
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