India’s stock market faced an all-out selloff on Friday as the escalating war with Iran in West Asia pushed crude oil prices above $100 a barrel, threatening the inflation outlook and fiscal stability of Asia’s third-largest economy.
The benchmark 30-share S&P BSE Sensex in Mumbai fell 2.07% or 1,579.82 points to 75,070.44, while the broader NSE Nifty 50 fell 2.22% to 23,305.75. Equity losses also weighed on currency and bond markets as investors grappled with the impact of the prolonged war and the closure of the vital Strait of Hormuz shipping lane.
The rupee fell to an all-time low of 92.4325 per dollar, breaking its previous record set a day earlier. The currency has now lost about 1.5% of its value since the Iran war began. According to local traders, the decline would have been more severe had the Reserve Bank of India not intervened aggressively in the spot and futures markets.
“The risk-on trend globally is deepening as the conflict approaches the two-week mark,” said a private-bank trader. “For an oil-import-dependent country like India, the combination of crude above $100 and a weak currency creates a classic twin-deficit concern.”
energy shock
Global benchmark Brent crude climbed to $101 a barrel on Friday. For India, which imports more than 80% of its oil needs, the price rise is a direct hit to its growth-inflation dynamics. HDFC Bank Ltd. analysts warned that if the conflict causes oil prices to average $90 a barrel, headline inflation could rise to 5%-5.5% for the fiscal year ending March 31, 2027 — about 100 basis points higher than previous forecasts.
One basis point is one hundredth of one percentage point.
The impact of the energy shock was visible on the industrial and metal sectors. Larsen & Toubro Ltd and Tata Steel Ltd fell over 4% each, leading the Sensex decline. Defense and infrastructure stocks also suffered losses, with Bharat Electronics Ltd and UltraTech Cement Ltd among the major laggards. In contrast, defensive plays like Hindustan Unilever Ltd. and Bharti Airtel Ltd. managed to post modest gains.
bond yields rose
The selling extended to the sovereign debt market, where the benchmark 6.48% 2035 bond yield rose to 6.6744%. Bond prices – which move inversely to yields – have come under pressure as traders priced in a “higher-longer” interest rate environment.
RBI has sought to control the market by conducting ₹OMO purchases worth Rs 50,000 crore were made earlier this week and a similar launch is planned on Friday.
Despite these efforts, the swaps market signaled growing concern – the one-year overnight indexed swap (OIS) rate rose 5 basis points to 5.81%, indicating the RBI may have limited room to ease policy if energy costs remain high.
capital flight
Geopolitical tensions have led to a sharp reversal in foreign capital inflows, which had been a pillar of Indian equity strength earlier this year. Foreign investors have sold Indian shares worth about $5 billion so far this month, according to data compiled by Bloomberg.
Looking to the future, economists are preparing for further devaluation of the currency. MUFG Bank Ltd warned that if oil remains at $120 a barrel amid energy shortage, the rupee could weaken to 97.50 or lower. Quantico Research offered an even more bearish outlook, suggesting the currency could reach 98.5 by March 2027 under a persistent $100-a-barrel scenario.
“The market is currently in a ‘left tail risk’ environment,” MUFG analysts wrote in a note. “Until there is clarity on the scale of the Strait of Hormuz and Iran-Israel tensions, Indian assets will remain on the defensive.”
