Turmoil in West Asia keeps markets on edge, Sensex slips below 66,000

Oil prices climbed 1.2 per cent to nearly $94 per barrel after an explosion at a Gaza hospital jeopardised peace efforts in the Middle East

The Indian equity benchmarks stumbled on Wednesday as rising crude oil prices and bond yields, and a slide in financial majors rattled investors. The Sensex closed at 65,877, down 551 points or 0.83 per cent, while the Nifty50 fell 140 points, or 0.71 per cent, to close at 19,671. The Nifty Midcap 100 and the Nifty Smallcap 100 declined by 0.9 per cent and 0.34 per cent, respectively.

Foreign portfolio investors (FPIs) sold shares worth Rs 1,832 crore, while domestic institutions were buyers to the tune of Rs 1,470 crore on Wednesday. After pulling out over Rs 15,000 crore last month, FPIs have sold equities worth more than Rs 10,000 crore, so far, this month.

Brent crude prices rose sharply to breach the $93 per barrel mark in intraday trade, after a blast at a Gaza hospital threatened to derail the efforts to bring peace to West Asia. It was trading at $91.12 per barrel, up 1.36 per cent, at 7.45 pm IST.

The explosion, which happened just hours before US President Joe Biden’s arrival in Israel, killed nearly 500 people, according to the Gaza health ministry, which accused Israel of orchestrating the attack. According to the Israeli version, a “misfired” rocket by the Palestinian militant group Islamic Jihad was responsible for the tragedy. The leaders of Jordan, Egypt, and the Palestinian Authority have cancelled a summit with Biden.

The rising oil prices pose additional risk to India as it imports more than three-fourths of its requirements. 

Iran asked the Organisation of Islamic Cooperation (OIC) members to impose an oil embargo and other sanctions on Israel.

“The markets were hoping that diplomacy would pay off, but it seems tensions will rise further," said Andrew Holland, CEO of Avendus Capital Alternate Strategies. "If the situation worsens, oil prices will spike and set the stage for the markets to fall further.”

Meanwhile, strong US consumer spending and industrial production data for September dashed hopes of peaking interest rates there, triggering a fresh round of selloff in the bond market. Retail sales unadjusted for inflation rose to 0.7 per cent in September. An index of US industrial production rose 0.3 per cent to 103.6, the highest since December 2018.

Amid the risk of interest rates remaining higher for longer, the 10-year treasury yield in the US on Tuesday was at 4.84 per cent, the highest level since September 2007. The yield moderated a bit and traded at 4.83 per cent on Wednesday.

China's economy growing faster than expected provided some comfort to dampened sentiment. The world’s second-largest economy grew at a rate of 4.9 per cent in the July-September quarter from the same period a year earlier, indicating that stimulus measures by Chinese authorities were showing traction.

“Investor sentiment would be subdued until the tension between Israel-Gaza subsides. But we expect stock-specific actions to continue as more results get declared,” said Siddhartha Khemka, head of retail research, Motilal Oswal.

The broader markets were weak, with 2,322 stocks declining and 1,386 advancing.

Barring three, all Sensex stocks declined. HDFC Bank fell 1.4 per cent and contributed the most to the index’s decline, followed by Reliance, which fell 1.36 per cent. The Nifty Bank index dropped 1.2 per cent as quarterly earnings posted by some banks and NBFCs stoked fears of margin pressure.

Quarterly results, US initial jobless claims, and statements of US monetary policy officials will be keenly tracked for further cues.