Indian equities managed to close slightly higher on Thursday after a volatile final auction pushed benchmark indexes sharply upward, although mounting tensions in the Middle East and a fresh surge in crude oil prices kept investors cautious.
The benchmark Nifty 50 ended 0.2 per cent higher at 23,477.8, while the BSE Sensex gained 0.19 per cent to close at 74,902.59.
The modest gains masked significant volatility in the final minutes of trading. Indicative closing levels briefly showed both indexes more than 1 per cent higher during the closing auction session (CAS), after the benchmarks had been slightly lower at the end of normal trading at 3:15 p.m. IST.
The sharp late-session swings highlighted the growing influence of the CAS, introduced in early August, which has amplified movements in Indian equities because of relatively thinner liquidity during the auction period.
Thursday's volatility was also heightened by the expiry of weekly derivatives contracts linked to the Sensex.
Oil prices deepen investor concerns
Despite the late recovery in stocks, investors remained wary as Brent crude climbed above $102 a barrel, raising fresh concerns over inflation, corporate costs and economic growth in India, one of the world's major oil-importing economies.
Higher crude prices can put pressure on India's trade balance and currency while increasing costs for businesses and consumers. Prolonged increases could also make it harder for policymakers to contain inflation without sacrificing economic growth.
The latest oil-price surge came as the conflict involving Iran and the United States intensified.
Iran said it had attacked 10 ships near the strategically important Strait of Hormuz after the United States sank five Iranian oil tankers in what was described as the largest attacks on shipping during the six-month-old conflict.
The developments have heightened concerns about the security of one of the world's most important energy corridors and the potential for further disruption to global oil supplies.
Indian benchmarks remain under pressure
Thursday's gains did little to reverse a difficult September for Indian equities.
The Nifty and Sensex have fallen 2.5 per cent and 2.7 per cent, respectively, so far this month, with both indexes closing lower in six of the eight trading sessions.
The weakness has extended beyond India's biggest companies. Eight of the 16 major sectors declined on Thursday, while the broader small-cap and mid-cap indexes fell 0.1 per cent and 0.4 per cent, respectively.
The uneven performance suggests that investors remain reluctant to take on significant risk despite the headline gains in the benchmark indexes.
“Technically, the market is vulnerable to further correction, and the fundamental macro trends continue to deteriorate,” said V K Vijayakumar, chief investment strategist at Geojit Investment.
Investors turn to US inflation data
Rising crude prices are also adding to investor nervousness ahead of key US inflation data that could influence expectations for the Federal Reserve's next policy decision.
Two traders said the increase in oil prices had left investors particularly cautious ahead of the release of US inflation indicators.
The US producer price index was expected later on Thursday, followed by consumer price inflation data on Friday.
The figures will be closely watched for clues about the direction of US interest rates, with the Federal Reserve expected to make its next policy decision the following week.
For Indian markets, any indication that US inflation remains stubbornly high could complicate expectations around global interest rates, capital flows and emerging-market currencies.
Oil producers gain
Not all stocks were hurt by the rise in crude prices.
ONGC gained 1.4 per cent as higher oil prices boosted expectations for revenue and profit margins at upstream producers.
The company's performance highlighted one of the unusual features of the current market environment: while expensive crude threatens to raise costs for oil-importing economies such as India, it can simultaneously benefit domestic companies involved in oil exploration and production.
For the broader market, however, the direction of crude prices remains a key concern.
With geopolitical tensions escalating, investors are increasingly focused on whether oil prices can remain above the $100-a-barrel threshold and what that could mean for inflation, economic growth and monetary policy.
The late rally in Indian shares therefore offered only limited relief after another turbulent session, with investors facing a difficult combination of geopolitical uncertainty, elevated oil prices and potentially significant signals from US inflation data.