(March 2): Indian equities tumbled on Monday, tracking declines across most Asian peers, as escalating conflict in the Middle East dented investor sentiment.
The NSE Nifty 50 Index slipped as much as 2.1% — the most in more than a month — erasing gains made after the country’s trade deal with the US in February. Engineering majors Larsen & Toubro Ltd, Reliance Industries Ltd and carrier InterGlobe Aviation Ltd led the losses in the benchmark gauge.
“Middle East escalation draws rising oil risk for Indian markets,” JM Financial Ltd strategists including Venkatesh Balasubramaniam wrote in a note, citing likely pressure on shares of oil marketing companies, paints, aviation and chemicals as they may face margin pressure from higher input costs.
Given India’s dependence on imports for most of its energy needs, rising oil prices can significantly widen the trade deficit and weigh on the rupee and equities. A US$1 increase in crude prices raises India’s annual import bill by about US$2 billion, putting pressure on the trade balance, the JM Financial strategists said.
The Middle East conflict is the latest setback for India’s US$5.1 trillion equity market, which has lagged most major peers since late 2024, partly due to weaker earnings growth. Lower exposure to artificial intelligence-related stocks, compared with markets such as China, South Korea and Taiwan, also contributed to the underperformance.
While local stocks saw some gains following India’s much-awaited trade agreement with the US on Feb 2, a relentless selloff in information technology shares has continued to weigh on investor sentiment.
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"The impact on India is typically magnified as higher crude oil prices widen the current account deficit, stoke domestic inflation and pressure the rupee,” said Nachiketa Sawrikar, a fund manager with Artha Bharat Global Multiplier Fund. This could also lead to foreign outflows as “global investors reduce risk exposure".
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