Market sentiment remained fragile throughout the session after crude oil prices surged following fresh Israeli military strikes on Iran and Lebanon, raising concerns about a broader regional conflict and potential disruptions to global energy supplies.
Brent crude jumped 4.3% to $97 per barrel, adding pressure on oil-importing nations such as India and fuelling fears of inflationary risks.
The benchmark Nifty 50 index dropped 1.04% to settle at 23,123, while the BSE Sensex declined 0.97% to 73,524.26. Both blue-chip indices ended the day at their lowest levels in two months.
Financial and IT Stocks Lead Market Decline
Selling pressure was widespread across sectors, with 15 of the 16 major sectoral indices ending in negative territory. Financial stocks, which carry significant weight on the benchmark indices, fell 1%, while information technology shares lost 1.2%.
The weakness was even more pronounced in the broader market, where small-cap stocks slipped about 1.9% and mid-cap shares declined 1.4%, reflecting broad-based risk aversion among investors.
Across Asia, the mood was similarly gloomy. The MSCI Asia ex-Japan index plunged 3.5%, while South Korea's KOSPI tumbled 8.3%. Japan's Nikkei shed 3.9%, largely driven by steep declines in technology and artificial intelligence-linked stocks that had previously enjoyed strong rallies.
Rising Oil Prices and Tech Rout Weigh on Sentiment
According to market experts, a combination of geopolitical uncertainty and a global technology selloff intensified pressure on equities.
"A sharp selloff in technology, semiconductor and AI-linked stocks, along with elevated crude prices amid the Middle East conflict," weighed heavily on investor sentiment, said Rajesh Palviya, Head of Research at Axis Direct.
Investors also reacted to stronger-than-expected economic data from the United States, which has renewed concerns that interest rates could remain higher for longer.
Market participants are increasingly worried that the resilience of the U.S. economy may compel the Federal Reserve to maintain a restrictive monetary policy stance, potentially delaying future rate cuts and keeping borrowing costs elevated.
Palviya noted that "the data has reignited concerns that the Federal Reserve could maintain a hawkish stance for longer, resulting in higher bond yields and renewed risk aversion across global equities."
Rupee Support Measures and Foreign Outflows Add Pressure
The market decline came shortly after Indian authorities unveiled measures aimed at supporting the rupee, which has been under pressure from rising oil costs and sustained foreign capital outflows linked to geopolitical uncertainty surrounding the Iran conflict.
Higher crude prices pose a significant challenge for India's economy because the country imports a large portion of its energy requirements. Any prolonged increase in oil prices could widen the trade deficit, pressure the currency, and complicate inflation management efforts.
Wipro, InterGlobe Aviation Among Major Losers
Among individual stocks, IT major Wipro emerged as one of the biggest losers, plunging 8.4% to a three-year low. The decline followed its buyback record date and mirrored weakness in global technology shares.
InterGlobe Aviation, the parent company of IndiGo, also came under pressure, falling 2.7% after a Bloomberg report indicated that the airline is unlikely to receive the full batch of nine Airbus A321XLR aircraft expected this year.
With geopolitical tensions escalating, crude prices rising, and uncertainty surrounding U.S. monetary policy, analysts expect volatility to remain elevated across global and Indian financial markets in the near term.