Sensex crashes 900 points; why is Indian stock market falling after the US attack on Iran? Explained with key factors
Indian stock market witnessed significant losses in early trade on Monday, June 23, with the Sensex crashing over 900 points, and the Nifty 50 falling below 24,850 on a broad selloff amid weak global cues.
The Sensex opened at 81,704.07 against its previous close of 82,408.17 and touched an intraday low of 81,476.76, falling over 900 points, or more than 1 per cent.
The Nifty 50 opened at 24,939.75 against its previous close of 25,112.40 and dropped over 1 per cent to an intraday low of 24,824.85.
The BSE Midcap and Smallcap indices also fell by almost a per cent each.
The overall market capitalisation of BSE-listed firms dropped to nearly ₹ 445 lakh crore from about ₹ 448 lakh crore in the previous session, making investors poorer by about ₹ 3 lakh crore within the first 15 minutes of the session.
Here are the five key factors that could be behind the market selloff:
Fresh escalations in tensions between Israel and Iran have dealt a blow to market sentiment, shattering the belief that the war between Israel and Iran may not linger for a longer period.
The US on Saturday struck Iran with a surprise assault on three of Iran's nuclear facilities, which added a new turn to the evolving situation in the Middle East.
Experts highlight that the Iranian response to the US attack will hold the key to how the Israel-Iran episode shapes up.
"Even though the US bombing of Iran's three nuclear facilities has worsened the crisis in West Asia, the impact on the market is likely to be limited. The uncertain factor now is the timing and nature of the Iranian response. If Iran targets and damages the US defence facilities in the region or seriously hurts US military personnel, the US response can be huge, and this might further worsen the crisis," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
According to media reports, Iran's Supreme National Security Council is exploring the possibility of closing the Strait of Hormuz, an important global energy route. According to Bloomberg, roughly one-fifth of global oil supplies pass through this route daily.
A closure of the Hormuz Strait would significantly disrupt crude oil supplies, shoot up oil prices, and severely damage the economies of major oil importers like India.
Experts believe that crude oil prices above $80 per barrel for an extended period will negatively impact India's fiscal math, distorting its trade deficit. Elevated crude oil prices can also raise inflation, weaken the rupee, increase companies' input costs, and dent their profitability.
Brent crude jumped over 2 per cent to trade near $79 a barrel on Monday morning due to heightened concerns of global supply disruption after the US on Saturday attacked three nuclear facilities in Iran.
Meanwhile, the Indian rupee declined 17 paise to 86.72 against the US dollar in early trade on Monday.
The dollar index jumped nearly half a per cent, weighing on stock market sentiment. A stronger dollar increases the risk of foreign capital outflows, especially at a time when geopolitical tensions make riskier equities less appealing and investors flock to safe-haven assets.
Even though the Indian economy is driven largely by domestic consumption, concerns are mounting that it cannot remain completely immune to global developments, and the country's growth dynamics could take a hit as a result.
Jaspreet Singh Arora, Chief Investment Officer at Equentis Wealth Advisory Services, pointed out that geopolitical tensions increasingly appear to be the new normal.
"It began with the Russia-Ukraine conflict, over two years ago, followed by the Israel-Hamas war. In between, there were flare-ups between India and Pakistan, and now tensions are escalating between Israel and Iran,' said Arora.
Besides, tariff-related uncertainties persist. While several major economies have been engaged in negotiations with the US administration since President Donald Trump announced reciprocal tariffs on US trading partners, significant uncertainty remains about how these negotiations will ultimately unfold.
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