Crude Pressure and Policy Signals Keep Markets Cautious

The unresolved U.S.-Iran conflict kept crude prices elevated through much of the period. Brent briefly eased towards USD 87 per barrel amid diplomatic activity around the Strait of Hormuz, with Iran and Oman working on arrangements to improve traffic through the key energy route. However, prices recovered to around USD 89 by the end of the fortnight. For India, which imports around 85–88 per cent of its crude requirement, elevated oil prices remained a risk for inflation, the current account and the rupee. This kept domestic equities sensitive to every change in the crude price outlook.[EasyDNNnews:PaidContentStart]

The closing auction session also drew attention during the fortnight. On August 27, the Sensex’s indicative closing level briefly pointed to a fall of more than 3 per cent during the auction, despite the index trading only modestly lower beforehand. The episode brought the new closing-price mechanism into focus around the monthly derivatives expiry.

Indian benchmark indices ended the fortnight lower. The Nifty 50 declined 0.78 per cent to 24,175.65, while the BSE Sensex fell 0.95 per cent to 77,264.51. Both indices also registered their third consecutive weekly decline, while the Nifty went through a seven-session losing streak. India VIX, however, declined by around 5.5 per cent, from 11.30 to 10.68.

Sectoral performance remained mixed. Metal was the strongest performer, gaining 3.02 per cent. Broader markets held up better, with the BSE 250 Smallcap Index rising 0.87 per cent and the BSE 150 Midcap Index gaining 0.35 per cent. FMCG was the weakest sector, declining 2.91 per cent during the fortnight.

Institutional flows remained an important support for the market. FIIs recorded net sales of ₹3,661.89 crore, while DIIs bought ₹36,626.05 crore. The sizeable gap between domestic buying and foreign selling helped absorb part of the external pressure and supported market liquidity despite weakness in the benchmark indices. The divergence also showed how strongly domestic institutions continued to counter foreign outflows during the period.

Crude oil, hawkish central banks and divergent institutional flows kept markets cautious despite strong domestic buying.

On the macro front, RBI MPC minutes reflected greater caution on inflation, with policymakers indicating that a rate increase could become necessary if price pressures persisted. India’s foreign exchange reserves reached a record USD 729.33 billion. Industrial production grew 6.7 per cent year-on-year in July, with capital goods output rising 16.1 per cent. The RBI’s August bulletin also flagged risks from elevated crude oil prices, geopolitical uncertainty and global trade disruptions, keeping inflation concerns in focus.

Going ahead, crude oil developments, the U.S. Federal Reserve’s September decision, the RBI’s evolving policy stance and the direction of institutional flows are likely to remain the key market triggers.

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