Bank Nifty Suffers 1.5% Plunge Amid Surge in Crude Oil Prices

Banking Shares Decline Amid Fears of Increased Inflation and Higher Interest Rates

Banking shares took a hit on Thursday, with the Bank Nifty index falling approximately 1.5 percent due to a sharp rise in crude oil prices. The index slipped as much as 1.7 percent during the session before trimming some losses. Out of the 14 constituents, 12 were trading in the red, with Axis Bank and Canara Bank leading the losses.

The private bank and PSU bank indices also fell up to 2 percent, with PSU banks experiencing the sharpest decline. Indian Bank dropped more than 3 percent, with all 12 constituents of the PSU bank index trading lower. This decline came amid concerns that higher crude oil prices could lead to increased inflation, prompting a rise in interest rates and bond yields. As a result, treasury gains may be impacted, and borrowing costs for banks may increase, weighing on profitability.

Global oil prices surged after Brent crude crossed USD 125 per barrel earlier in the day. Brent crude for June delivery rose 6.2 percent to USD 125.36 per barrel, while July delivery gained 3.1 percent to USD 113.85. Prior to the escalation of the Iran conflict in late February, Brent crude was trading around USD 70 per barrel.

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The Iran war entered its ninth week with no clear resolution in sight. The US has maintained its blockade of Iranian ports, while the Strait of Hormuz remains closed, tightening supply conditions. Market sentiment was further impacted by reports indicating a possible escalation by US President Donald Trump, reducing expectations of a near-term resolution.

The immediate support for Bank Nifty is placed in the 55000-54900 zone. Any sustainable move below this zone could result in Bank Nifty extending its weakness towards 54600, followed by 54300 in the short term. On the upside, the zone of 55900–56000 is likely to act as an immediate resistance, noted Sudeep Shah, Head - Technical and Derivatives Research at SBI Securities.