Domestic benchmark indices Nifty 50 and Sensex opened lower on Monday, 28 September, as investors remained cautious after the benchmarks recorded their longest weekly losing streak since 2020. Rising crude oil prices amid a stalemate in US-Iran peace talks added to the pressure.
The Nifty 50 fell 0.33% to 23,064.90, while the BSE Sensex declined 0.22% to 73,734.83 at 9:15 AM IST. However, selling intensified thereafter, with both indices falling more than 1% around 9:45 AM. The Nifty 50 also slipped below the 22,900 level for the first time since 7 April.
US President Donald Trump said he had rejected an Iranian proposal to reopen the Strait of Hormuz and end the fighting. Iran, meanwhile, maintained on Sunday that diplomacy was the only way to resolve its conflict with the US and Israel.
Market weakness was broad-based, with 14 of the 16 major sectors trading lower. The broader small-cap and mid-cap indices also declined around 0.2% each.
Top 3 factors behind the market fall
High crude oil prices
Brent crude futures climbed 2% to around $106.50 per barrel, on Monday after US President Donald Trump rejected an Iranian peace proposal aimed at resolving the conflict and reopening the Strait of Hormuz, keeping tensions in the Middle East elevated.
Iran had announced a peace proposal at the UN General Assembly the previous week, saying it had been conveyed to the US through Qatari mediators. Trump said on Saturday that he had rejected the proposal. However, in a Sunday interview with Axios, he said he expected US negotiators to hold further talks this week, according to Reuters.
For India, higher crude prices remain a key concern as the country is the world’s third-largest crude oil importer. A sustained rise in oil prices could increase the import bill, add to inflationary pressures and weigh on corporate margins.
According to a Reuters report, G Chokkalingam, founder and head of research at Equinomics Research, said that higher oil prices, rising inflation and inadequate liquidity remain major concerns for domestic markets. He added that the short-term outlook for Indian markets remains quite pessimistic.
Elevated US bond yields
The US 10-year yield at 5.2% are strong headwind that is weighing on markets. Ponmudi R, CEO of Enrich Money, said that rising global bond yields and a stronger US dollar remain key headwinds for emerging markets, as tighter financial conditions could weigh on foreign portfolio flows and overall risk appetite.
He added that elevated US Treasury yields, along with renewed inflation concerns, are strengthening expectations that global monetary policy could remain restrictive for longer.
FPI selling and fears that FPIs will sell more
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments, said that FPIs have turned sellers again in September after recording positive inflows in July and August, keeping the domestic market under pressure in the near term.
According to Vijayakumar, FPI equity outflows through exchanges have reached ₹25,682 crore as of 25 August, while investments through the primary market stood at ₹8,551 crore during the same period.
He noted that an important trend is that while FPIs have been selling large-cap stocks, they continue to buy mid- and small-cap stocks despite their elevated valuations. “The broader market is where the momentum is,” he said, adding that this could be a short-term phase.
Vijayakumar further said the valuation gap between large-caps and mid- and small-caps is unlikely to persist for long, with a reversion towards the mean likely. According to him, this could happen once crude oil prices and US bond yields cool off.
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