Oil Cools, Markets Heat Up

The last fortnight brought a much-needed wave of optimism for investors as geopolitical tensions in the Middle East eased significantly. A key development was the signing of a memorandum of understanding (MoU) between Iran and the U.S., followed by Iran’s agreement to keep the Strait of Hormuz open, alleviating concerns over potential disruptions to global oil supplies. Consequently, Brent crude prices retreated sharply, falling back to levels seen at the onset of the conflict.[EasyDNNnews:PaidContentStart]

For India, the sharp fall in oil prices was arguably the single biggest positive catalyst because it directly improves inflation expectations, corporate profitability, and the country’s external balances. This has resulted in domestic markets shining brightly, with investor optimism firing on all cylinders. The benchmark BSE Sensex and Nifty 50 surged 3.45 per cent and 2.77 per cent, respectively, while the broader BSE 150 Midcap and BSE 250 Smallcap indices climbed 3-4 per cent each. The rally was broad-based, with almost all key sectors participating in the investor-led uptrend, while the information technology sector remained a notable exception.

The information technology sector emerged as the worst performer during the period, with the index plunging around 5 per cent as investors remained cautious over persistent weakness in global discretionary technology spending and delayed client decisionmaking, particularly in the U.S. market. Concerns that generative AI could disrupt traditional IT services and pressure future revenue growth also weighed on sentiment. Adding to the pessimism, Wipro and Infosys ADRs declined sharply following cautious commentary from global technology leaders and brokerages, triggering selling across Large-Cap IT stocks.

Geopolitical calm, softer crude and RBI support combined to revive risk appetite across Indian equities.

The sector also remained relatively unattractive amid a broad market rotation towards domestic-facing sectors expected to benefit from easing crude prices, lower inflation, and improving economic sentiment. On the other hand, Banking stocks emerged among the best performers during the period, driven by strengthening expectations of an accommodative interest-rate environment, which is expected to support credit growth and loan demand. Sentiment received an additional boost after the RBI temporarily relaxed deposit-rate caps on select NRE and FCNR(B) deposits to attract overseas capital, a move expected to enhance foreign currency inflows and improve banks’ funding profile.

Optimism over lower funding costs, resilient asset quality, and healthy earnings prospects further fuelled the rally, with both private and public sector banks witnessing strong buying interest. On the institutional front, foreign institutional investors (FIIs) remained net sellers, offloading equities worth around ₹11,900 crore during the period. However, the magnitude of selling eased significantly compared with the previous fortnight. In contrast, domestic institutional investors (DIIs) continued to lend strong support to the markets, pumping in nearly ₹31,100 crore, which helped sustain investor sentiment and cushion the impact of FII outflows. Stay tuned for further updates!

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