Indices fall as hopes for a rate cut collapse.

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For the third consecutive trading session, the benchmark indices experienced a downturn on Tuesday, marking their longest losing streak in three months. Investor sentiment turned cautious amidst speculation that the Federal Reserve might not implement interest rate cuts in June, fueled by robust US retail sales data and escalating geopolitical tensions in West Asia. The Sensex dropped by 0.6%, shedding 456.1 points to close at 72,943.68 points, while the Nifty ended 0.6% lower, down by 124.6 points to settle at 22,147.90 points. Over the past three trading days, investor wealth has declined by nearly Rs 8 trillion.

The conflict between Iran and Israel, exacerbating geopolitical tensions in West Asia amid the ongoing Israel-Gaza conflict, has sparked concerns about potential spikes in crude oil prices. Such increases could amplify inflation concerns globally. Additionally, data revealing higher-than-expected retail sales in the US for March reinforces the case for the Federal Reserve to maintain steady interest rates. This data follows previous indicators of a robust labor market and inflation levels surpassing expectations.

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Vinit Bolinjkar, Head of Research at Ventura Securities, noted that the news of Iran-Israel tensions coincided with the market hovering around record-high levels and lofty valuations. Investors are grappling with the prospect of a global economic slowdown due to geopolitical risks potentially driving up crude prices, thus contributing to the ongoing market sell-off.

Despite the downturn, Indian equities fared comparatively better than major Asian and European markets, which experienced declines ranging from 1% to 2.5% on Tuesday. Market participants anticipate the continuation of risk-off sentiment until clarity emerges regarding the West Asia crisis. In the US, investors await insights from Federal Reserve Chief Jerome Powell's scheduled speech late Tuesday.

Prashanth Tapse, Senior VP (Research) at Mehta Equities, highlighted concerns about the conflict's impact on crude oil prices, potentially weighing on inflation. He anticipates a bearish trend in Thursday's session, with downside risks persisting for the benchmark Nifty, possibly reaching the psychological 22,000 mark.

Meanwhile, Brent Crude oil remained around $90 per barrel on Tuesday, while the yield on the benchmark US 10-year bond reached a 5-month high at 4.64%. Shares of IT companies bore the brunt of the market downturn, as higher interest rates and persistent inflation in the US and Europe dampen investor sentiment amid hopes for demand recovery.

Conversely, shares of oil and gas companies rallied on Tuesday amid expectations of rising crude oil prices. Defensive sectors such as pharmaceuticals and FMCG also witnessed buying interest. The overall market breadth was positive, with mid-cap and small-cap shares outperforming large-caps. The BSE Midcap index edged 0.1% higher, while the BSE Smallcap index rose by 0.6%.