West Asia War Rattles India Markets: Sensex Slides 2%, Rupee Breaches 92 mark

Indian financial markets reeled under a fresh wave of risk aversion on Wednesday as escalating US-Israel strikes on Iran sent crude oil to multi-month highs, drove the rupee to an unprecedented low beyond 92 per dollar, and pushed bond yields higher amid inflation concerns.

Benchmark indices opened sharply lower, reflecting deepening anxiety over the prolonged conflict in West Asia. The BSE Sensex slumped nearly 2% to 78,780, while the NSE Nifty 50 dropped a similar margin to 24,390, as investors returned after Tuesday’s market holiday to a sharply deteriorated global backdrop.

The sell-off intensified across sectors, with almost the entire market trading in the red during early hours. Oil & gas stocks bore the brunt of the decline on concerns that supply disruptions could squeeze margins and inflate input costs. Financials emerged among the top losers on the Nifty, mirroring broader risk-off sentiment and worries about capital flows.

Defence stocks, however, bucked the trend, drawing investor interest amid expectations of higher global military spending if tensions persist.

The broader narrative remained dominated by the war entering its fifth day, with little indication of de-escalation. Crude prices surged to a 19-month high, fuelling fears of a sustained inflation shock.

Foreign portfolio investors added to the pressure, pulling out over $350 million from Indian equities on Monday, underscoring growing caution toward emerging markets.

Rupee
The Indian rupee opened at a record low of 92.02 per US dollar, weakening 55 paise from Monday’s close of 91.47 and breaching the 92 mark for the first time. The previous lifetime low of 91.9875 was recorded in January.

The slide was triggered by surging crude prices and heightened geopolitical tensions, which boosted safe-haven demand for the dollar. Brent crude climbed more than 1% to $82.32 per barrel on Wednesday, extending a two-day rally of over 11%, after briefly crossing $85 the previous day for the first time in nearly two years.

Higher oil prices inflate India’s import bill, widen the current account deficit, and increase dollar demand from refiners -- all factors that weigh on the domestic currency. Adding to the strain, the dollar index rose to a three-month high of 98.41, reflecting global risk aversion and euro weakness.

Analysts expect the rupee to remain under pressure in the near term unless there is a meaningful pullback in oil prices or a visible easing of geopolitical tensions.

Government Bonds
Government bond yields edged higher as investors reassessed inflation risks stemming from elevated crude prices and currency weakness. The benchmark 10-year yield rose 5 basis points to 6.7209%. 

The surge in Brent crude above $80 per barrel has revived concerns that imported inflation could complicate the domestic rate outlook. A weaker rupee further exacerbates price pressures by raising the cost of energy and other imports.

With inflation risks resurfacing and global uncertainty mounting, bond markets are likely to stay sensitive to oil price movements and currency volatility in the sessions ahead.