Geopolitics, Volatility and the Market Sell-Off

The last fortnight was marked by a series of global developments that kept investors on edge. These included U.S. President Donald Trump’s tariff threats against European nations, the Greenland crisis involving geopolitical manoeuvring and economic leverage between Europe and the U.S., and widespread protests across Iran. The unrest in Iran, given its critical role in global energy markets, further dented risk sentiment. Adding to the uncertainty were renewed threats by President Trump to take action against Iran, alongside several other geopolitical flashpoints that collectively weighed on market confidence.[EasyDNNnews:PaidContentStart]

Nifty VIX, the fear indicator, rose sharply by more than 20 per cent in the last fortnight, underscoring heightened uncertainty and cautious investor behaviour. On the institutional front, foreign investors remained net sellers, with outflows of around ₹23,000 crore during the period. The rupee continued to weaken during the period, tracking broad-based strength in the U.S. dollar and persistent global risk aversion. Ongoing foreign fund outflows and heightened geopolitical uncertainty further weighed on the domestic currency. Investor pessimism was clearly reflected in market trends during the period.

The benchmark indices, the BSE Sensex and the Nifty 50, declined by 2-3 per cent each, while selling pressure was more pronounced in the broader market. The BSE Mid-Cap Index tumbled 2.85 per cent, and the BSE Small-Cap Index recorded losses of over 4 per cent. On the sectoral front, all major indices traded in the red with significant cuts, except the IT, metals and Banking indices, which reported modest gains. IT stocks outperformed during the period as a weaker rupee against the U.S. dollar improved revenue visibility for exportoriented companies.

Leading IT companies reported a decline in profitability, largely on account of one-time expenses rather than any structural deterioration in business fundamentals. A key factor was the provisioning related to the implementation of the new labour codes, which led to higher employee benefit and compliance costs in the quarter. Excluding these one-off charges, operating performance remained largely stable, with management commentary indicating that the impact is non recurring and margins are expected to normalise in subsequent quarters. Metal stocks rallied amid supportive global cues. Sentiment improved on expectations of policy support from China to revive infrastructure and manufacturing activity, which lifted demand outlook for base metals. Concerns over supply disruptions, including restrictions on rare earth metal exports and cuts in silver exports, pushed precious metal prices sharply higher. Firm prices across precious metals and base metals, along with short-covering after recent corrections, helped metal stocks outperform despite weakness in the broader market. Attention has now shifted to the Q3 results, which could provide support to panic-stricken markets, while positive Budget developments are expected to offer further clarity on the growth outlook. Stay tuned!

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