MUMBAI: Indian equity indices snapped their two-week winning streak last week, falling more than two per cent as escalating geopolitical tensions pushed crude oil prices above 116 dollars a barrel and persistent foreign fund outflows weighed on Dalal Street, even as domestic institutional buying offered some support.
For the week, the BSE Sensex declined 1,605.44 points, or 2.14 per cent, to close at 74,729.27, while the Nifty 50 fell 546.15 points, or 2.25 per cent, to end at 22,600. The move ended a two-week advance and left the market lower across large-cap, mid-cap and small-cap segments, with the broader market suffering sharper losses than the benchmarks.
The proximate cause of the sell-off was crude oil. Brent crude surged past 116 dollars a barrel during the week, and later traded above 117 dollars, amid escalating tensions in the Middle East and concerns over prolonged energy supply disruptions.
For India, which imports the overwhelming majority of its crude oil, a sustained rise in prices carries a direct cost: it widens the import bill, pressures the rupee, complicates the fight against inflation and squeezes the margins of companies that depend on petroleum-linked inputs.
Foreign institutional investors remained net sellers for the ninth consecutive week, offloading equities worth 2,697.37 crore rupees, although the pace of selling eased compared with earlier weeks. Domestic institutional investors, by contrast, bought equities worth 10,942.19 crore rupees during the week, cushioning the fall but not preventing it.
The Indian rupee ended largely unchanged at 94.94 per dollar on October 23, after trading in a range of 94.32 to 94.97 against the US dollar during the week.
The damage was broad-based. The Nifty Midcap 100 index shed 5.6 per cent, with Swiggy, KEI Industries, Motilal Oswal Financial Services, Mahindra and Mahindra Financial Services, Suzlon Energy, Bharat Heavy Electricals, Tata Investment Corporation and Exide Industries falling between ten and twenty-five per cent.
The Nifty Smallcap 100 index fell more than seven per cent, with Himadri Speciality Chemical, CreditAccess Grameen, Urban Company, Deepak Fertilisers and Petrochemicals Corporation, Aarti Industries, Ola Electric Mobility, IIFL Finance, Hindustan Copper, Inox Wind, JM Financial, Garden Reach Shipbuilders and Engineers and Reliance Power dropping between twelve and twenty-five per cent.
Every sectoral index ended the week in the red. The Nifty Defence index plunged seven per cent, followed by the Nifty Consumer Durables index, which fell 6.4 per cent, and the Nifty Capital Markets index, which declined six per cent. The Nifty Metal, Media and Realty indices each shed around five per cent. The breadth of the decline suggested that investors were reducing risk across the board rather than rotating from one sector to another.
Total BSE market capitalisation declined by more than twenty lakh crore rupees during the week. The biggest wealth eroders included HDFC Bank, Bajaj Finance, Reliance Industries and Axis Bank, while the top wealth creators were Tata Consultancy Services, HCL Technologies and UltraTech Cement.
The relative resilience of information technology stocks stood out in an otherwise weak market, with analysts noting that the sector's earnings visibility and dollar-linked revenues offered some shelter from the crude shock.
Several factors beyond crude contributed to the cautious mood. Elevated US Treasury yields, liquidity considerations surrounding the Reliance Jio initial public offering, and the approach of the US Federal Reserve's October 27 to 28 policy meeting all gave investors reason to wait.
The September-quarter earnings season, now under way, has so far offered a mixed picture, and market participants are watching closely for signs of whether corporate profit growth can justify current valuations.
The week's decline also has a technical dimension. The Nifty 50 lost 2.36 per cent over the week according to some calculations, snapping its previous two-week winning streak and moving closer to its 200-week exponential moving average, a level that technical analysts watch as a gauge of long-term trend. The index has now fallen for four consecutive sessions, and the technical structure remains weak, with selling pressure visible across most sectors.
Looking ahead, analysts say the coming week, from October 26 to 30, could be crucial. Market participants will monitor whether the indices can stabilise near immediate support zones or extend their decline if selling pressure persists. The key variables are familiar: crude oil prices and geopolitical developments in the Middle East, global bond yields, domestic liquidity conditions, institutional fund flows and the progress of the earnings season.
Domestic industrial-production data and the outcome of the Federal Reserve meeting will also feed into sentiment.
For retail investors, the week's events are a reminder of how quickly sentiment can reverse. Only a fortnight ago, the market was celebrating two consecutive weeks of gains; within five trading sessions, those gains had been more than erased in the broader market, and the benchmarks had given back a significant portion of their advance.
The domestic institutional buying that cushioned the fall is itself a sign of the market's changing character: with foreign investors selling for nine straight weeks, domestic funds, insurers and retail systematic investment plans have become the marginal buyers keeping the market afloat.
Whether that support holds will depend, above all, on crude. If geopolitical tensions ease and oil prices retreat, the market could stabilise quickly, and the week's losses could prove to be a correction within a longer uptrend. If crude stays elevated, however, the pressure on the rupee, on inflation and on corporate margins will persist, and the market's next test may be not whether it can recover its recent highs, but whether it can hold its recent lows.
For now, Dalal Street heads into the new week with its two-week rally behind it and its attention fixed firmly on the price of a barrel of oil.
The market's direction in the coming sessions will also be shaped by how global investors read the Federal Reserve's next move and by the flow of September-quarter results from India's largest companies. If earnings surprise positively and crude prices cool, foreign investors who have sold for nine consecutive weeks could return, and the domestic buying that has held the market up could be joined by fresh overseas inflows.
Until then, traders say, caution is likely to remain the watchword on Dalal Street, with every uptick in crude prices treated as a fresh reason to sell.
(Reporting based on Moneycontrol and Business Today.)