Nifty 50, Sensex Dip Nearly 1% Amid Middle East Tensions; Nifty IT Index Falls 1.74%

Post by : Elena Malik

Indian equity markets experienced a prolonged downturn for the sixth consecutive trading session on Friday amidst unconfirmed reports of explosions in Iran, Iraq, and Syria. These reports emerged amidst expectations of potential retaliatory actions from Israel following attacks attributed to Iran over the previous weekend.

However, Iran has refuted reports of a missile attack, while Israel has not yet confirmed launching airstrikes on Iran. Explosions were heard near an airport in Isfahan, not Tehran, but there is no confirmation of retaliation.

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The escalating conflict in the Middle East contributed to a downturn in stocks, while safe-haven assets like Treasury bonds and the dollar witnessed gains. Tensions between Israel and Iran have escalated in recent weeks, particularly after Iran's alleged launch of drones and missiles on April 13 in response to an attack attributed to Israel. This geopolitical uncertainty has kept global markets on edge.

Following the reports of explosions, Asian markets saw significant losses at the opening of Friday's trading session. Japan's Nikkei 225 declined by 3.3%, the broader Topix index fell by 2.78%, South Korea's Kospi index dropped by 2.83%, and Hong Kong's Hang Seng index decreased by 1.49%. Mainland China's CSI 300 index slipped by 0.68%.

Reflecting the downturn in Asian markets, India's Nifty 50 opened the session with a gap down of 134 points at 21,861 points and hit an intraday low of 21,777.65 points, down 0.99%, while the Sensex also plummeted by 0.92% to hit an intraday low of 71,816 points.

The Nifty IT index slumped 1.74% due to weak earnings posted by Infosys.

Furthermore, markets were impacted by diminishing prospects of a near-term rate cut by the U.S. Federal Reserve, as indicated by New York Fed President John Williams. Williams emphasized that there was no "urgency" to reduce interest rates and highlighted the gradual alignment of interest rates with the Fed's objectives.

US Fed Chair Jerome Powell's remarks on Tuesday also suggested a delay in rate cuts, following the release of the consumer price index for March, which exceeded earlier projections. Consequently, the anticipated timing for the first-rate cut has shifted from the previously expected June date.

Escalating tensions in the Middle East have propelled oil prices higher, with Brent crude futures trading up by 2.77% at $89.33 per barrel and WTI futures up by 2.23% at $84.87 per barrel.

Bond yields strengthened further, with the U.S. 2-year Treasury yield rising close to 5% on Thursday, and the yield on the 10-year Treasury rising by nearly 5 basis points to 4.633%. The rally in bond yields followed data indicating strength in the manufacturing sector.

In today's trading session, the Indian rupee plummeted to a new low of 83.83 against the US dollar, driven by the strengthening of the US dollar index and the Federal Reserve's indication of a potential delay in its first rate cut since 2020.

Amidst escalating geopolitical tensions, investors are turning to safe-haven assets like gold, which rallied 0.9% on Thursday despite robust economic data from the U.S. and hawkish comments from the Federal Reserve.

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