Indian benchmark indices extended their decline for a fifth consecutive week, with the BSE Sensex falling 2.3% over the week and the NSE Nifty 50 declining 2.1%, marking their steepest weekly drop since 24 July. On Friday, Indian equities faced a sharp sell-off, dragging the Nifty 50 to a three-month low of 23,398.10, down 0.3% for the day, while the Sensex ended 0.2% lower at 74,781.76. According to Kotak Securities, the main indices partly recovered from lows during the session, with both Nifty and Sensex declining as much as 1% before recovering. The NSE's India VIX, a gauge of market volatility, surged 4% to 12.27 levels, highlighting increased investor uncertainty. In the broader market, the Nifty Midcap 150 dropped 0.3% and Nifty Small-cap 250 fell 0.5% during the week, with market breadth remaining negative as 2,010 shares rose and 2,474 shares fell on the BSE.
The sharp rise in oil prices remained the primary catalyst for Indian equity weakness, with Brent crude November futures trading at $104.1 a barrel on Friday after climbing above $100 for the first time this week since May. As reported by Kotak Securities, crude sustaining above the $100 per barrel mark, on continued hostilities and retaliatory action in West Asia, remained the central variable through the week. The oil prices are track for a weekly gain of around 8% to 9%, with the crude oil rally pushing the 10-year US Treasury yield to 4.95-4.97%, its highest level since October 2023 and close to the critical 5% threshold. This sets the stage for a potential rate hike at the 16 September US Fed meeting, with markets now pricing in a ~71% probability of a 25-basis-point Fed hike, up from 61% prior to the producer price index print. The sell-off in the just-ended week was broad-based as all major sectors, except pharma and healthcare, logged weekly losses, with Nifty Realty logging the biggest decline at 6.5%.
Technology stocks continued to face pressure amid AI disruption concerns, with the BSE IT index dropping 5.8% this week, followed by the BSE Realty index falling 6.5% as rate-sensitive sectors faced heightened volatility. According to Motilal Oswal Financial Services, the sell-off was broad-based as all major sectors, except pharma and healthcare, logged weekly losses, with Nifty IT down 5.8%, Nifty Metal, Nifty Oil & Gas and Nifty Financial Services falling about 2% each. The Nifty IT index was the worst-performing sectoral gauge, falling 3% in early deals, while the Nifty MidSmall IT & Telecom fell about 2%. ChatGPT concerns have triggered genuine risk in IT stocks, as AI could lower effort-based billing and accelerate client productivity demands before Indian IT firms can monetize AI services at scale. The Nifty MidSmall IT & Telecom fell about 2%, while healthcare, consumer durables and metal stocks bucked the broader trend, with Nifty Consumer Durables rising 0.38%, Nifty Metal gaining 0.39%, and Nifty Pharma advancing 0.27%. Earlier in the session, 14 of the 16 major sectoral indices were trading in negative territory.
Foreign portfolio investors have resumed selling after a brief period of net buying in July-August, pulling out nearly ₹931 crore in September as of Friday, snapping their recent buying streak. According to Economic Times, domestic institutional investors were buyers to the tune of ₹1,968 crore, while Foreign portfolio investors remained net sellers, offloading Indian equities worth ₹931 crore. The combination of elevated US yields, a firmer dollar, and crude oil hovering above $100 is a classic emerging market risk-off setup. The 10-year Indian government bond yield shed 0.14% to 6.951 compared with the previous session close of 6.965, after rising for a third consecutive week. The 10-year US Treasury yield rose to 4.95-4.97%, its highest level since October 2023 and close to the critical 5% threshold, setting the stage for potential rate hikes. The 23,500-23,260-23,000 zone is in focus, with analysts noting that consolidation near 23,500 or an early move above 23,650 could create conditions for short covering towards 23,860-23,900.
Global equities continued to navigate geopolitical instability, with Asian markets declining broadly as Japan fell 1.9%, China declined 1.2%, Hong Kong fell 0.6%, South Korea declined 1.8% and Taiwan dropped 1.6%. However, the pan-Europe index Stoxx 600 was up 0.8% at the time of going to print. As reported by Kotak Securities, several key events are expected during this period, including the release of CPI numbers, potential positive developments on the geopolitical front, particularly as crude has crossed the $100 mark, and encouraging indications from the BRICS summit. Markets appear deeply oversold after 25-30 days of weakness, and we believe the worst may be behind us, said Kotak Securities. RSI readings in the oversold zone suggest a near-term pullback towards 23,700-23,800 cannot be ruled out, according to Motilal Oswal Financial Services. Until crude prices correct and bond yields ease, the near-term trend is likely to remain weak, with sideways-to-negative movement, while despite weakness in the index, stock-specific momentum, particularly in the small-cap space, remains encouraging, offering selective opportunities.
