Global markets experienced significant volatility on Friday as futures tied to the Nasdaq and S&P 500 plummeted, each losing over 1% in value. According to CNBC TV18, the selloff was driven by surging Treasury yields that stirred unease about growing inflation sparked by unrest in the Middle East. The 10-year Treasury note yields have climbed to 4.54%, marking a peak not seen since June 2025. Investors globally have reacted to the escalating Iran conflict with increased bond yields, suggesting quicker-than-anticipated interest rate hikes that could stifle economic growth. The likelihood of the U.S. Federal Reserve raising rates by 25 basis points in December has more than doubled recently, according to data from CMEGroup's Fedwatch tool.
According to reports from CNBC TV18, Trideep Bhattacharya, CIO-Equities at Edelweiss AMC, believes India's equity market has fallen more than the actual economic damage from the West Asia conflict justifies. He notes that markets have very well factored in the impact, with earnings impact in FY27 estimated at just 2-4%, while markets have corrected from peak anywhere between 5-10%. This gap between market correction and actual economic impact could create an opportunity for investors, particularly as global markets face additional pressure from Middle East tensions.
As reported by CNBC TV18, Bhattacharya's entire outlook rests on one critical factor: oil prices. He estimates that if crude falls back to around $100 a barrel by the end of May or early June, the damage will remain manageable and India will get through the crisis without lasting harm. The strategy involves buying stocks that have fallen more than their business performance warrants, focusing on finding relatively insulated spots that could hold investors in good stead for about a year or two from now. However, recent developments show Brent crude prices soared nearly 3% to reach $109 a barrel amid a blockade of the Strait of Hormuz, igniting fears over worldwide energy supplies.
According to CNBC TV18, Bhattacharya estimates the full fuel price increase needed is ₹15-20 per litre, with the May 15th ₹3 per litre hike being just the opening move. He expects more hikes on petrol, diesel and gas over the next 15-20 days, rolled out gradually to soften the blow on consumers. The deadline to watch is June, as if oil stays above $100 into July, the government will have little choice but to cut infrastructure spending to control the deficit. The current oil price surge to $109 per barrel adds urgency to these fuel price adjustments.
As reported by CNBC TV18, despite heavy FII selling through 2025-26 (FY26), Bhattacharya thinks the government is more likely to offer some tax relief on equities than impose fresh burdens. He expects a little bit on the other side rather than taking further away from equity markets. However, he clarifies that a tax gesture alone will not be enough for FIIs to turn positive on India, stating that for FIIs to turn positive on India, we will have to see oil prices below $100. The current global market turbulence, with surging Treasury yields and inflation concerns, adds complexity to foreign investor sentiment.
According to CNBC TV18, Bhattacharya warns that if oil stays above $100 into July, August, September, the government will have to take measures, which he sees as a worst-case scenario. For now, he sees that as not the most likely one. The recovery contingent on oil cooling to $100 by June, with the rupee, company earnings, foreign investor flows and government spending all following from where oil goes next. Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, emphasized the ongoing Middle East tensions as a critical concern overlooked by many tech investors, highlighting the global nature of the current market challenges.
