Indian Stock Market Slumps Amid Rising Tensions in West Asia

Market Turmoil Continues as West Asia Conflict Escalates

Mumbai: The Indian market witnessed a broad-based selloff on Tuesday, with the Sensex tumbling 1.9% and the Nifty 50 falling 1.8%. This decline extended the losses over four successive sessions to 4%, wiping out investor wealth worth ₹10.95 trillion in a single day.

The uncertainty triggered by escalating tensions in the West Asia region, surging crude oil prices, relentless foreign fund outflows, a plunging rupee, and Prime Minister Narendra Modi's call for economic restraint rattled investor sentiment. The Nifty Midcap 100 and Nifty Smallcap 250 fell 2.5% and 2%, respectively, as the selloff intensified across the broader market.

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Among the biggest drags on the Nifty 50 were Adani Ports and Special Economic Zone and Shriram Finance, both of which slipped 4.3%. IT stocks followed, with Tech Mahindra falling 4.2% and HCL Technologies, 4%.

The rout also pushed up the India VIX, a widely regarded market 'fear gauge', by 5% to 19.46, signalling a sharp rise in expectations of heightened volatility ahead. Provisional data from BSE and NSDL showed that FIIs were net sellers of Indian equities worth ₹1,959.39 crore, while DIIs were net buyers with purchases worth ₹7,990.32 crore.

The uncertainty is exacerbated by weekly Nifty derivatives expiry-related positioning and long unwinding in the options segment. Market participants noted that provisional FPI selling figures were not particularly large, indicating that long liquidation in index options amplified the sharp intraday decline.

Market Outlook

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Ponmudi R., CEO of online trading and wealth tech firm Enrich Money, said the 23,300-23,150 region is now a crucial immediate support area for Nifty 50. "A decisive close below this band could extend weakness toward the 23,000 mark in the coming sessions," he said.

Saurabh Mukherjea, chief investment officer and co-founder of Marcellus Investment Managers, believes that most global investors in the Indian market are feeling very apprehensive right now. Investors are choosing to stay on the sidelines until there is greater clarity on the economic outlook.

Mukherjea expects foreign investors to continue pulling money out of Indian markets until the economy begins to stabilize. He believes that once the economy begins to stabilize, companies will start passing on higher costs through price hikes, which could then pave the way for gradual interest rate increases. This, in turn, may set the stage for attractive valuations to kick-in in the Indian market.

Impact of West Asia Conflict

The West Asia war, which began on 28 February, has lifted crude 44% to $104 a barrel as of 11 May. On Tuesday, Brent crude oil rose nearly 2% to $106.3 per barrel. The pressure is visible in the currency markets, with the rupee depreciating 4.75% to 95.31 against the US dollar as of Monday.

Drawing parallels with the 2013 crisis playbook, when the US taper tantrum led to a sharp 15% depreciation in rupee-dollar exchange value in a month, Agrawal said the RBI could launch a special deposit scheme to attract foreign currency inflows from NRIs and the Indian diaspora through dollar-denominated fixed-income products with assured returns over 2-3 years.

Monsoon Risks

Mukherjea also flagged the monsoon as a key risk, warning that weak or uneven rainfall could hurt rural spending and derail the earnings recovery narrative markets have been banking on.

Ram Sahgal contributed to this story.