Indian equities fell for a fifth consecutive week, their longest losing run in roughly eight months, as surging crude prices and uncertainty over the Middle East conflict triggered heavy foreign outflows and sent the rupee to record lows.
The benchmark Nifty 50 dropped 2.09% on Friday to 22,819.60, while the BSE Sensex fell 2.25% to 73,583.22. For the week, both indices lost about 1.3%, extending a broader slide that has seen them shed roughly 9.5% since hostilities involving Iran escalated at the end of February.
The downturn has been accompanied by a sharp rise in volatility, with the market’s fear gauge climbing to levels last seen in mid-2024, reflecting growing unease among investors over the durability of earnings and capital flows.
Oil has been the push behind the selloff. Prices holding above $100 a barrel have darkened the outlook for India, the world’s third-largest crude importer, where higher energy costs feed quickly into inflation, corporate margins, and the current account balance.
The currency market has borne the brunt of those pressures. The rupee weakened to a record closing low of 94.8125 per dollar after briefly touching 94.84, extending a slide that has seen it lose about 4% since the conflict began and roughly 11% over the current fiscal year — its steepest annual decline in more than a decade.
The move denotes a combination of external and domestic strains. Elevated oil import bills are widening India’s trade deficit, while risk aversion linked to geopolitical tensions has triggered record foreign outflows, estimated at $12.14 billion for the month. The dynamic echoes past episodes of stress, notably the 2011–12 period when global risk-off sentiment and domestic imbalances drove a similar depreciation cycle.
Policy signals from Donald Trump have done little to calm markets. His decision to extend a deadline for Iran to reopen the Strait of Hormuz, a critical energy corridor, has not eased supply concerns, with crude prices hovering near multi-year highs. For investors, the risk is not just disruption, but duration: a prolonged conflict could entrench high energy costs and amplify macroeconomic vulnerabilities.
Analysts are already revising expectations. Goldman Sachs has cut India’s 2026 growth forecast to 5.9% from 7% and downgraded equities to “marketweight,” citing the drag from higher oil prices and tightening financial conditions.
Corporate India is particularly exposed. Higher input costs are expected to compress margins significantly, with some estimates suggesting profitability could fall to around 9% from 16% if crude prices remain elevated. That pressure is beginning to show across sectors, with energy and metal stocks declining over the week, reflecting both cost concerns and weaker demand expectations.
Financials, a key pillar of the market, have also come under strain. HDFC Bank fell 3.1%, marking its fifth straight weekly decline, its longest losing streak in six years, amid regulatory scrutiny following the abrupt resignation of its part-time chairman.
Beyond equities, the broader macro picture is deteriorating. Economists warn that India is entering this phase with limited buffers. Unlike previous cycles, both government and household balance sheets are under pressure, constraining the scope for stimulus without widening fiscal deficits.
Sanjay Mathur of ANZ noted that policymakers may be forced to choose between higher borrowing and cuts to capital expenditure, with the latter seen as the more likely outcome — a shift that could weigh on medium-term growth prospects.
The government has already taken steps to cushion the blow, including cutting excise duties on fuel and imposing windfall taxes on certain petroleum products. But these measures come with fiscal trade-offs, particularly if high oil prices persist.
Attention is also turning to the Reserve Bank of India, which faces a tightening policy dilemma. While currency weakness and imported inflation argue for higher interest rates, slowing growth and fragile market sentiment complicate the outlook. Some analysts expect rate hikes over the next 12 months, even as the central bank appears to be moderating its intervention in currency markets to conserve foreign exchange reserves.
Societe Generale has gone further, recommending short positions on the rupee with a target of 96 per dollar, citing reduced intervention and a shift in policy focus toward managing bond yields rather than defending the currency aggressively.
Against this backdrop, the interplay between oil prices, capital flows, and policy response is expected to remain decisive, at least for now.
