Indian benchmark indices traded lower on Monday, 31 August, as renewed US-Iran tensions pushed crude oil prices higher and triggered a broader risk-off move across global markets. Weak Asian cues, sustained foreign fund selling and concerns around large block deals and the latest MSCI index rejig also weighed on investor sentiment.
At around 11 am, the BSE Sensex was down 483.60 points, or 0.63 per cent, at 76,780.91. The Nifty 50 fell 175.70 points, or 0.73 per cent, to 24,010.65. The index touched an intraday low of 23,997.10.
Key reasons behind Monday’s market decline:
1. US-Iran tensions push crude oil higher
Global sentiment weakened after the US carried out strikes on Iranian targets, marking the first known American strikes on Iran since late July.
The fresh escalation has revived concerns about a wider conflict and possible disruptions to global energy supplies. Brent crude jumped around 3 per cent to $90.68 a barrel following the strikes.
Higher crude prices are a concern for India because the country is heavily dependent on oil imports. A sustained rise in crude can increase the import bill, put pressure on the rupee and complicate the inflation outlook.
2. Asian markets see a broad sell-off
Indian equities are also taking cues from weakness across Asian markets.
Japan’s Nikkei declined around 0.34 per cent, while South Korean equities fell about 0.14 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan was down around 0.27 per cent.
US stock futures were also pointing to a weaker opening, with S&P 500 futures down around 0.3 per cent and Nasdaq futures lower by about 0.5 per cent.
3. FII selling pressure returns
Foreign institutional investors (FIIs) continued to put pressure on Indian equities.
FIIs sold shares worth Rs 5,039 crore in the cash segment in the previous session. This was their biggest single-day cash-market selling since 8 June.
Their net selling across cash, index futures and stock futures stood at Rs 5,665 crore for the third consecutive day. FIIs also remained net sellers in index futures for the fifth straight session, with selling worth Rs 774 crore.
Their index futures long positions declined for a second consecutive day, with the long ratio falling from 9.83 per cent to 9.63 per cent.
In contrast, domestic institutional investors (DIIs) continued to provide support. They were net buyers to the tune of Rs 5,183 crore, their 14th day of net buying in a row.
4. MSCI index rejig adds to volatility
The latest MSCI index rejig is another factor that adds to investor caution. Changes in major global indices can lead to large passive fund flows as money managers adjust their portfolios to reflect the new weightages. This can lead to higher trading activity and volatility in stocks affected by the rejig. The changes are to be effective from close of trade on Monday, adding to the market’s focus on possible flows. 5. Block deals, QIPs and IPOs raise supply concerns
Large block deals have also emerged as a key feature of the Indian market in recent months.
Two major block deals worth Rs 3,615 crore were reported on Friday. Lenskart Solutions saw a deal worth Rs 1,857 crore, involving around 1.7 per cent of its equity, while Ather Energy witnessed a transaction worth Rs 1,758 crore, or around 3 per cent of its equity.
Total block deal activity in August has now reached around Rs 39,815 crore, the highest level in 14 months.
6. Jackson Hole signals keep rate worries alive
Markets are also digesting comments from US Federal Reserve Chair Kevin Warsh at Jackson Hole.
Warsh indicated that inflation has not fallen significantly enough and that if inflation fails to return to the Fed’s 2 per cent target, higher interest rates could remain an option.
The comments have kept investors focused on the US rate outlook, bond yields and the dollar. A higher-for-longer rate environment can weigh on emerging-market assets, including Indian equities.
7. Dollar, bond yields and commodities add to pressure
Global market data also points to a cautious environment.
The dollar index ended Friday at 99.66, its highest level in two weeks. The US 10-year Treasury yield rose 1 per cent to close at 4.72 per cent.
Precious metals also weakened. Comex gold fell $115 to below $4,500, while silver declined nearly 5 per cent to around $67 an ounce.
Base metals also came under pressure, with nickel falling around 1 per cent and zinc declining for a third straight session.
