Equities Slide; Rupee Hits 2-Month Low Amid Crude Spike, West Asia Tensions

HIGHLIGHTS

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Indian equity markets ended in the red for the second straight session on June 13, dragged down by heightened geopolitical tensions and a sharp surge in global crude oil prices. However, a late recovery helped benchmarks close above intraday lows, reflecting some resilience amid broader caution.

The sell-off was triggered after Israel's military strikes on Iranian nuclear facilities, prompting Tehran to threaten a "harsh response." The development pushed crude oil prices up by nearly 13%, marking their highest level in over two months. This spike weighed heavily on crude-sensitive sectors and dampened investor sentiment across the board.

The Nifty 50 saw broad-based pressure, with top losers including Adani Ports, ITC, SBI, IndusInd Bank, and Hindalco. On the flip side, Bharat Electronics, ONGC, Tech Mahindra, TCS, and Wipro offered some support, backed by gains in the IT and defence segments. 

 Sectoral Performance
Sectorally, all indices except media closed in negative territory. FMCG, PSU banks, oil & gas, power, and telecom declined between 0.5% and 1%. Aviation stocks remained under pressure for the second session, following the Air India Dreamliner mishap in Ahmedabad on June 12, further aggravated by higher fuel cost expectations.

Defence stocks stood out as a bright spot, witnessing renewed buying interest amid rising hopes of increased government orders in light of the global security landscape

Top Gainers	% Change	Top Losers	% Change
NIFTY PSU BANK	-1.18%	NIFTY MEDIA	0.17%
NIFTY FMCG	-1.05%
NIFTY BANK	-0.99%
NIFTY METAL	-0.96%
NIFTY FINANCIAL SERVICES	-0.92%

Indian government bonds ended on a weak note, with yields rising amid a combination of adverse global cues and a shift in the Reserve Bank of India’s monetary stance. The benchmark 10-year gilts yield settled at 6.2996% on Friday, up from 6.2798% in the previous session. The yield rose by 6 basis points during the week, marking the steepest weekly increase since December 2020.
The sharp move was driven primarily by a spike in global crude oil prices following Israel’s large-scale military strikes on Iran. Brent crude surged over 13%, reaching its highest level in more than two months. Given India’s heavy reliance on imported oil, the spike raised fears of renewed inflationary pressures, which could potentially derail the current disinflationary trend.

This rise in oil prices came on the heels of the RBI’s unexpected 50-basis-point rate cut and simultaneous shift to a "neutral" policy stance at its recent policy meeting. While the rate cut initially cheered bond markets, the policy shift was seen as a signal that further easing is unlikely in the near term. Bond traders, therefore, reassessed expectations, leading to a selloff that pushed yields higher.

The combination of rising geopolitical risk, inflation concerns, and fading hopes of additional rate support has tilted bond market sentiment bearish.

Tenure	Today	Previous
10-year Gilt	6.30%	6.28%
5-year gilt	5.99%	5.97%
5-year OIS	5.76%	5.73%

The Indian rupee weakened sharply on Friday, closing at a two-month low of 86.08 against the US dollar amid a surge in global crude oil prices and rising geopolitical tensions in West Asia. The currency depreciated by 48 paise from its previous close of 85.60, marking its weakest level since April 11.

The sharp fall was primarily triggered by a more than 13% spike in crude oil prices following Israel's military strikes on Iranian nuclear facilities. With Iran vowing a strong retaliatory response, global markets turned risk-averse, and emerging market currencies like the rupee came under pressure. Higher crude prices directly impact India’s trade deficit and inflation outlook, making the rupee vulnerable to further depreciation.

The RBI was seen intervening in the currency market to contain volatility and prevent panic-driven moves. Despite the intervention, sentiment remained fragile as traders braced for potential capital outflows and a wider current account deficit if oil prices remain elevated.

Adding to the rupee's woes, forward premiums rose across maturities, reflecting market expectations of a tighter interest rate environment going forward. Rising premiums signal the cost of hedging foreign exchange risk is increasing, potentially indicating heightened uncertainty over India’s external balances.

Unit	Today	Previous
Dollar/Rupee	86.08	85.60
Dollar Index	98.31	98.03
1-year Dollar/rupee premium (%)	1.89%	1.87%

OUTLOOK
Equities are expected to remain under pressure in the near term, driven by elevated crude oil prices and escalating geopolitical tensions in West Asia. After two straight sessions of declines, market sentiment may stay fragile, particularly for crude-sensitive sectors such as oil & gas, aviation, and FMCG. Broader indices like midcaps and smallcaps are likely to underperform due to valuation concerns and global risk aversion. However, select IT and defence stocks may find support, given their export focus and potential for higher order inflows. Volatility will likely remain high as investors track developments in the West Asia and crude price movements.

Indian government bond yields are expected to trade with an upward bias in the near term. The sharp surge in crude prices and the RBI’s recent shift to a neutral stance will likely reinforce concerns over inflation and limit expectations of further monetary easing. The benchmark 10-year yield, which rose notably over the past week, could continue edging higher if global risk sentiment weakens or if oil prices remain elevated. RBI's cautious tone and geopolitical risks will keep bond investors defensive.

The Indian rupee may continue to face downward pressure, especially after hitting a two-month low. Persistent crude strength, global risk-off sentiment, and India's external vulnerabilities could weigh further on the currency. While RBI intervention may curb excessive volatility, traders will remain wary of further depreciation. The rupee is likely to trade in the 85.80–86.30 range, with risks tilted to the downside if tensions escalate.

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