The stock markets experienced a reversal of strong early gains on Thursday, closing lower, primarily due to investor concerns regarding potential rate hikes by the Reserve Bank of India (RBI), inflation risks, and global uncertainties. The BSE Sensex finished the day down by 135.03 points, concluding at 75,183.36, while the NSE Nifty50 decreased by 4.30 points, settling at 23,789.00.

Initially, the markets had begun positively, with the Sensex increasing by over 500 points in early trading, spurred by a sharp decline in crude oil prices following U.S. President Donald Trump’s statements about progress in negotiations with Iran. However, this upward momentum weakened as traders grew more cautious about the implications of potential RBI interest rate hikes amidst ongoing inflation concerns linked to rising crude oil prices.

Volatility in Trading

Thursday’s trading session coincided with the weekly derivatives expiry for the Sensex, which typically contributes to increased market volatility as traders adjust their positions. During intraday trading, both major indices rose nearly 0.8% before erasing those gains. Vinod Nair, Head of Research at Geojit Investments Limited, commented on the market’s performance, indicating that concerns over potential RBI tightening and weak manufacturing data overshadowed the initially positive sentiment driven by declining crude prices.

Nair also noted the uncertainty surrounding U.S.-Iran negotiations and the outlook for domestic monetary policy, which continued to fuel macroeconomic concerns. This volatile atmosphere has kept investors on edge, balancing any optimism from fluctuating crude oil prices with the reality of persistent inflationary pressures.

Despite the overall decline, the rupee achieved its most significant one-day gain in nearly two weeks, recovering from previously recorded lows. A stronger rupee is generally beneficial for investor sentiment, as it alleviates some imported inflation pressures, particularly relevant for India, which is highly reliant on oil imports.

Impact of Global Crude Oil Prices

Throughout the trading session, global crude oil prices remained erratic. Brent crude oil, which had dropped by 5.6% overnight, was trading around $104 per barrel as Iran moved to tighten its control over the Strait of Hormuz. While crude prices showed signs of easing, apprehension over possible supply disruptions and prolonged geopolitical tensions in West Asia persisted among investors.

As India imports nearly 90% of its crude oil requirements, elevated prices are a significant concern for inflation and the overall economic landscape. Economists at Standard Chartered have indicated that the RBI might initiate interest rate hikes as early as June, citing inflationary risks associated with crude oil pricing and a depreciating rupee. Investment strategists have warned that the consequences of the current energy crisis may become increasingly evident in the first quarter of FY27.

Analysts have observed that while recent quarterly results have been encouraging, the downward pressures from rising energy costs are anticipated to be felt more acutely in the coming fiscal period. Nevertheless, should crude prices continue to decline, subsequent quarters could show improved performance.

Sector Performance and Notable Stocks

Although the benchmark indices faced downward pressure, broader market segments displayed resilience. The Nifty Smallcap100 index saw a gain of 0.63%, whereas the Nifty Midcap100 index remained largely stable. Sectorally, Nifty Realty climbed by 1.05%, with other sectors such as Nifty Auto, Nifty Pharma, and Nifty Healthcare also recording gains.

Conversely, the Nifty IT index fell by 0.56%, and Nifty FMCG dropped by 0.51%. Among prominent stocks, IndiGo emerged as a top gainer, rising over 3%, with Trent, BEL, and Adani Ports also closing higher. However, IT stocks faced pressure, with major players like Infosys, Tech Mahindra, and TCS witnessing declines, while Reliance Industries fell by 0.72%, dampening overall market sentiment.

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