The Indian stock market has been highly volatile of late amid a sharp rise in crude oil prices driven the US-Iran war. (An AI-generated image)AI Quick ReadAfter suffering losses for the last three consecutive sessions, the Indian stock market benchmarks- the Sensex and the Nifty 50- jumped by almost 1% each in morning trade on Monday, 27 April.
The gains in the benchmarks could be largely attributed to short covering amid positive global cues even as elevated crude oil prices and rupee's weakness remained key negatives for the market.
"Positive global markets and some short covering appears to be behind the rise in markets. However, it would be important to see where we close as the possibility of market surrendering most of the gains is high," Ajit Mishra, SVP of Research at Religare Broking, said.
Brent Crude oil prices rose more than 1% to trade above the $106 per barrel while the Indian rupee slipped 11 paise to 94.27 against US dollar in early trade.
The domestic market is expected to remain volatile in the near term due to persisting uncertainties over the progress in the US-Iran peace talks.
The diplomatic efforts from the US have failed to result in a final resolution to the West Asian conflict.
According to media reports, US President Donald Trump cancelled a planned trip by top envoys to resume negotiations with Iran in Islamabad, while Tehran continues its stance of not engaging in talks under threats or blockade.
Additionally, Iran’s Foreign Minister Abbas Araghchi said he met with Pakistan’s Field Marshal Asim Munir Saturday morning and explained Iran’s views on ending the war with the U.S.
The resolution to the West Asian conflict will be a major relief for markets globally as it will ease concerns over inflationary pressure by driving crude oil prices lower.
However, the impact of the war and elevated crude oil prices may take a long time to fade away completely.
"The impact of higher crude oil prices will likely linger for at least the next 1-2 quarters. India imports about 85-90% of its crude oil requirements, so elevated prices feed into inflation, CAD widening, and RBI policy caution," Vinit Bolinjkar, the head of research at Ventura, told Mint.
Shrikant Chouhan, the head of equity research at Kotak Securities, said for a sustained rally beyond 25,000, crude oil prices need to cool off to around $70–75 per barrel.
But crude oil prices may take a few months to come to the levels around $70–75 per barrel because of the damage of oil infrastructure facilities in the region and high inventory draws.
A Bloomberg report quoted Goldman Sachs Group's oil-price forecasts that Brent Crude may average $90 a barrel in the fourth quarter, up from a previous outlook for $80 as the prolonged closure of the Strait of Hormuz triggers extreme inventory draws.
Elevated crude oil prices can drag the profitability of Indian corporates because of increased input costs. Plus, it can drive inflation higher, triggering monetary policy tightening- again negative for corporate profitability and stock market sentiment.
Q4 earnings of heavyweight sectors like banking and IT have been mixed. Q1FY27 results could be weak because of the impact of geopolitical factors. For a sector like IT, the disruption caused by AI remains a key challenge.
Experts believe while the market may not touch the low of early-April, it can stay range-bound in the short term.
"Elevated crude prices could weigh on sentiment, leading to market weakness. While the market may not breach its previous lows, the Nifty 50 could witness a decline towards 23,000," said Chouhan.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.