New Delhi: Indian equities fell on Wednesday as renewed fighting between the United States and Iran pushed crude oil prices higher and increased concerns about inflation, import costs and future interest rate decisions.
The Nifty 50 fell 0.89 per cent to 23,841.40, while the BSE Sensex declined 0.79 per cent to 76,333.20 by 9:46 a.m. local time. All 16 major sectors were trading lower. Small cap stocks fell 0.8 per cent and mid cap stocks dropped 1.1 per cent.
The decline came as investors reacted to a fresh escalation in the conflict between the United States and Iran. The United States carried out strikes against targets in Iran, while Iran responded with missile and drone attacks against US targets in the region.
The renewed fighting has raised fresh concerns about oil supplies from the Middle East, particularly through the Strait of Hormuz. The waterway is one of the world's most important energy routes and carried about one fifth of the world's oil consumption before the conflict.
Shipping traffic through the strait has also fallen sharply. Preliminary shipping data showed that only four cargo vessels passed through the waterway on Tuesday, compared with 10 the previous day and an average of about 13 vessels over the previous 10 days. The figures can change because some ships switch off their tracking systems.
Brent crude rose to around $95.50 a barrel in Asian trading on Wednesday after gaining more than $4 on Tuesday. Higher oil prices are a major concern for India because the country depends heavily on imported crude to meet its energy needs.
An increase in global oil prices can raise India's import bill and put pressure on the rupee. It can also increase costs for transport, airlines, manufacturing and other businesses. If higher energy costs continue, they could add to inflation and make it more difficult for the Reserve Bank of India to ease interest rates.
Higher US Treasury yields are also adding to pressure on emerging markets. Rising yields can make US assets more attractive to international investors and reduce demand for riskier assets such as Indian equities.
Several Indian sectors were under pressure as crude prices rose. Oil marketing companies, airlines, tyre makers and paint companies were among those affected because higher energy costs can increase operating expenses and reduce profit margins.
The rupee also remains an important concern. It closed at 94.95 against the US dollar on Tuesday after reaching a two month high of 94.80. The currency had gained for three consecutive sessions, supported in part by intervention from the Reserve Bank of India.
A weaker rupee can make imported crude more expensive in local currency, adding further pressure to India's import bill. This is an additional concern for investors at a time when global energy markets remain highly uncertain.
The Indian government has said that the country's crude supply remains secure despite disruptions affecting the Strait of Hormuz. India has diversified its sources of crude and now imports oil from around 40 countries. The government has said about 70 per cent of India's crude imports are now routed through routes outside the Strait of Hormuz.
The government has also said that refineries across the country are operating at high capacity and that additional crude supplies have been secured. These measures are intended to reduce the risk of shortages and ensure continued fuel availability.
India's crude sourcing has also been changing during the conflict. India's imports of Russian oil fell 26 per cent in August from the previous month, according to provisional tanker data. The decline was linked to tighter Russian export availability, stronger competition from Chinese refiners and maintenance at some Indian refineries. Imports from Venezuela reached their highest monthly level since 2020.
The immediate market reaction does not mean that India is facing a fuel shortage. The main concern for investors is that crude prices could remain high if fighting continues and shipping through the Strait of Hormuz remains restricted.
Prolonged high oil prices could increase transportation and production costs and put pressure on household spending. They could also make it harder for policymakers to manage inflation while supporting economic growth.
Indian markets will remain sensitive to developments in the US Iran conflict, movements in crude prices and shipping through the Strait of Hormuz.
For now, investors are watching whether the latest military escalation remains limited or develops into a longer disruption to energy supplies. The longer oil prices remain high, the greater the potential pressure on India's inflation outlook, import costs, currency and interest rate expectations.