Indian Stock Market Extends Gains for Second Consecutive Session

Market Performance

On Wednesday, March 25, the Indian stock market benchmarks, Sensex and Nifty 50, extended gains for the second consecutive session. The Sensex jumped over 700 points (1.0%) to 74,841, while the Nifty 50 rose by 250 points (1.0%) to 23,158. This surge in the market led to a significant increase in investors' wealth, with a rise of ₹6 lakh crore within minutes. The overall market capitalisation of companies listed on the BSE rose to ₹429 lakh crore from about ₹423 lakh crore in the previous session.

Key Factors Behind the Rally

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The stock market's upward trend can be attributed to several key factors:

1. Indication of Middle East Conflict Resolution

Reports of positive developments between the US and Iran have cheered the market. The US President has claimed that Washington DC and Tehran have "major points of agreement," and ordered a five-day suspension of US strikes on Iranian energy infrastructure. This has raised hopes of a diplomatic breakthrough. According to VK Vijayakumar, Chief Investment Strategist, Geojit Investments, "Hope is returning to the market with indications of de-escalation in the conflict."

2. Positive Global Cues

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Positive global cues have boosted the overall market sentiment. Almost all major Asian markets were in the green in early trade. Japan's Nikkei and Korea's Kospi jumped up to 3%, while China's Shanghai Composite index climbed by 1% amid reports of peace talks between the US and Iran.

3. Crude Oil Prices Fall Below $100

Brent Crude prices crashed by more than 5% to fall below the $100-per-barrel mark following reports of the US diplomatic push to resolve the Middle East conflict. Brent Oil Futures June contracts dipped to $93.45 amid easing geopolitical risks. India, the world's third-biggest oil importer and consumer, meets about 80-90% of its crude oil requirements through imports. A decrease in crude oil prices can mitigate several economic risks, including a wider current account deficit, pressure on fiscal deficit targets, and foreign capital outflows.

Impact of Crude Oil Prices on India's Economy

A $10 per barrel rise in crude oil prices can widen India's oil deficit by $10–12 billion (0.4-0.5% of GDP), according to Motilal Oswal Financial Services. Crude oil accounts for 23% of India's import bill, and elevated prices can increase the risk of a wider current account deficit, pressure fiscal deficit targets, weaken the currency, raise inflation, and trigger foreign capital outflows.