Mumbai: With IT stocks leading the losses, Indian stock markets crashed early on Wednesday (Oct 28). This comes at a time of elevated crude oil prices, US-Iran tensions, and caution ahead of the US Federal Reserve’s policy decision. These factors seemed to have unsettled investors.
By 11am, BSE Sensex fell to 826 points and the NSE Nifty 50 shed over 200 points.
Infosys, Tech Mahindra and Tata Consultancy Services (TCS) were among the major losers. The Nifty IT index dropped 3.2 per cent. The Nifty FMCG index declined 1.22 per cent.
Here’s why the markets possibly crashed:
- Crude Oil Prices Surge Above $115
Rising crude oil prices continue to be a major concern for Indian markets. Brent crude climbed above $115 per barrel on Wednesday amid fears of supply disruptions in the Middle East. Reports of possible fresh military action against Iran added to these concerns, while tighter US crude inventories provided further support to oil prices.
For India, which imports a significant portion of its oil requirements, a prolonged rise in crude prices could increase the import bill, put pressure on the rupee and fuel inflation. Higher energy costs could also raise transportation, manufacturing and operating expenses for companies, potentially squeezing profit margins and dampening investor sentiment.
- US-Iran Tensions Keep Investors on Edge
Uncertainty surrounding the conflict involving the US and Iran continues to weigh on global market sentiment. Reports indicated that US President Donald Trump was considering a short but intense military campaign against Iran. However, no final decision to launch a fresh campaign had been confirmed.
Diplomatic efforts to ease tensions are ongoing, but a breakthrough remains elusive. Concerns over the Strait of Hormuz, a crucial route for global oil and liquefied natural gas shipments, have further heightened fears of potential energy supply disruptions.
For India, any escalation that keeps crude oil prices elevated could add to inflationary pressures, weaken the rupee and weigh on corporate earnings.
- Profit Booking and Cautious Trading After Expiry
Investors are adopting a cautious approach following Tuesday’s derivatives expiry. Some traders are choosing to book profits instead of building fresh positions, contributing to subdued market sentiment.
- Investors Await US Federal Reserve Decision
The upcoming US Federal Reserve policy decision is another key factor keeping investors on the sidelines. The US Fed is widely expected to maintain its benchmark interest rate in the range of 3.75 per cent to 4 per cent. However, market participants will closely watch for signals about the central bank’s future policy direction.
Comments from Fed Chair Kevin Warsh, along with the accompanying policy statement, could shape expectations around interest rates. A hawkish stance, indicating that rates could remain elevated for longer or rise further, may strengthen the US dollar and push bond yields higher. This could reduce the appeal of equities and influence foreign investment flows into emerging markets such as India.