The markets reversed early gains sharply on Tuesday, with the Sensex falling 778 points and the Nifty slipping below the 23,150 mark as rising crude oil prices, higher US bond yields and Middle East tensions weighed on investor sentiment.
The Sensex closed at 74,003.82, down 777.94 points, or 1.04%. The Nifty 50 declined 279.05 points, or 1.19%, to end at 23,118.60. The Nifty closed at its lowest level in nearly five months.
The session began on a positive note. The Sensex gained more than 400 points in early trade, while the Nifty moved above 23,500. The gains, however, quickly faded as selling pressure intensified across most sectors. The Sensex eventually lost more than 1,400 points from its intraday high.
Investor wealth fell by around ₹9 lakh crore during the session as concerns over inflation, crude oil prices and global interest rates increased.
Rising crude oil prices remained one of the biggest concerns for Indian investors. Brent crude climbed around 2% to nearly $108 a barrel as tensions in West Asia continued to disrupt energy markets. Reports of damage to Saudi energy infrastructure added to fears of tighter global oil supplies.
Higher oil prices are particularly worrying for India because the country relies heavily on crude imports. A sustained rise in crude prices can increase the import bill, put pressure on the rupee and make it harder for inflation to ease.
Global bond markets also added to the pressure. The US 10-year Treasury yield recently moved above 5%, raising concerns that borrowing costs could remain high for longer. Investors are also reassessing expectations around the US Federal Reserve as higher energy prices could keep inflation elevated.
Higher US yields tend to make dollar-denominated assets more attractive and can encourage foreign investors to reduce exposure to emerging markets such as India. Continued foreign portfolio investor selling has already been a concern for domestic equities.
The sell-off was broad-based. Fifteen of the 16 major sectoral indices ended lower. Nifty Financial Services fell around 1.8%, while the auto index dropped about 2%. Mid-cap and small-cap stocks also faced heavy selling, declining around 2.1% and 2.4%, respectively.
Information technology stocks were the notable exception. The Nifty IT index gained about 2.2%, helped by expectations that a weaker rupee and stronger demand for technology services could support the sector.
HCL Technologies emerged as the biggest gainer among major Nifty stocks, rising 3.95% to ₹1,253.70. Infosys climbed 3.79% to ₹1,077, while Tata Consultancy Services gained 2.28% to ₹2,251. Tech Mahindra rose 2.26% to ₹1,575.90 and Wipro added 1.55% to ₹170.
HDFC Bank also finished higher, gaining about 1.2%. The private lender had submitted two candidates to the Reserve Bank of India for consideration for its next chief executive officer.
The broader market, meanwhile, remained under pressure as investors moved away from riskier assets. Bharat Electronics was the biggest loser among the major stocks, falling 5.30% to ₹382.90. Shriram Finance declined 4.74% to ₹979.80, while Adani Enterprises dropped 4.29% to ₹2,928.60.
InterGlobe Aviation fell 3.96% to ₹4,776 and Grasim Industries declined 3.38% to ₹3,171.
Market participants are also keeping an eye on the rupee, crude prices and upcoming US economic signals. Any further escalation in West Asia could push oil prices higher and add to inflationary pressure.
The large pipeline of initial public offerings in India is another factor being watched by investors. A busy IPO market could absorb some domestic liquidity at a time when foreign fund flows remain uncertain.
The sharp reversal on Tuesday highlights the fragile mood in Indian markets. Investors are balancing strong domestic economic fundamentals against a difficult global backdrop marked by geopolitical tensions, expensive crude oil and higher interest rates.
The immediate direction of the Sensex and Nifty is likely to depend on movements in crude oil, global bond yields, foreign fund flows and developments in West Asia.