Indian equity markets ended Friday with steep losses as benchmark indices tumbled sharply in the final hour of trading amid rising nervousness over the possibility of prolonged tensions between the United States and Iran, the latest MSCI index reshuffle, and concerns surrounding high crude oil prices.
The BSE Sensex closed 1,092.06 points lower at 74,775.74, down 1.44 percent, while the Nifty 50 dropped 359.40 points or 1.5 percent to settle at 23,547.75.
Selling pressure accelerated late in the session, with the Sensex retreating nearly 1,450 points from its intraday peak of 76,220.02. The Nifty also slipped sharply after touching an intraday high of 24,002.8 earlier in the day.
Market breadth remained firmly negative on the BSE, where declining shares significantly outnumbered advancing stocks.
Geopolitical uncertainty weighs on sentiment
A major factor behind the market decline was uncertainty surrounding prospects of a durable peace agreement between the United States and Iran. After staging a strong recovery in April following March’s steep correction, investors appeared to book profits amid fears that geopolitical tensions in West Asia could continue.
“We are unlikely to see a consistent rise in Indian stocks unless the uncertainty over the US-Iran conflict is clearly behind us,” Arun Malhotra, founder and fund manager at CapGrow Capital, told Reuters.
Markets had already witnessed strong volatility in recent months, with the Nifty plunging 11.3 percent in March before recovering 7.5 percent in April.
MSCI reshuffle intensifies late market volatility
The final stretch of trading saw further pressure after the implementation of MSCI’s May index rebalancing exercise.
Passive investment funds linked to MSCI indices typically realign portfolios at market close on rebalancing days, often leading to sharp swings in heavily weighted stocks.
According to IIFL Capital, India’s weighting in the MSCI Emerging Markets Index, which had climbed to nearly 20 percent in July 2024, is expected to fall to around 11.2 percent after the latest reshuffle.
Elevated oil prices remain a major concern
Although Brent Crude futures declined nearly 19 percent during May, prices still remain more than 27 percent higher than levels seen before the Iran conflict escalated.
As one of the world’s largest crude importers, India remains highly exposed to rising oil prices, which can increase inflationary pressure and widen the country’s current account deficit.
Analysts said geopolitical uncertainty and energy market volatility have made investors increasingly cautious toward Indian equities.
Foreign investors stay selective
Market participants noted that overseas investors have remained selective toward Indian shares due to valuation concerns, elevated crude prices and the lack of a strong artificial intelligence driven rally in domestic technology stocks compared with global markets.
Heavyweight banking and IT shares added to the pressure, with financial stocks falling 1.2 percent and information technology counters declining 0.9 percent.
Reliance Industries also weighed heavily on the benchmarks after falling 7.7 percent during the month.
Sector-specific moves shape trading
Among notable laggards, Oil and Natural Gas Corporation declined 11.4 percent amid profit booking after a strong rally over the previous months and concerns surrounding delays at key production projects.
ITC Limited slipped 8.9 percent after analysts warned that recent cigarette price hikes could impact demand volumes.
However, certain pockets of the market continued to outperform.
Adani Enterprises surged 22 percent after reports that US authorities had dropped fraud charges against Gautam Adani.
Metal counters also posted gains, with Hindalco Industries and National Aluminum Company rising 8.6 percent and 6.3 percent, respectively, supported by strong domestic demand and concerns over global supply disruptions linked to the Iran conflict.
Benchmarks closed in negative territory in May
Friday’s steep decline dragged both headline indices into the red for the month.
The Nifty finished May down 1.9 percent, while the Sensex lost 2.8 percent over the period.
Broader markets, however, performed relatively better, with midcap and smallcap indices posting gains amid optimism around corporate earnings.
Investors are now expected to closely monitor developments in West Asia, crude oil movements, foreign investment flows, and upcoming domestic economic data for further direction.
