Summary of this article
Dalal Street braces for highly volatile trading sessions.
Rising crude oil prices pressure Indian corporate margins.
Rupee hits a record low against dollar.
The opening session on Dalal Street for May 18 is likely to be volatile, with market sentiment remaining cautious. Several factors are expected to impact the upcoming trading session, including the geopolitical standoff in West Asia, the continued rise in crude oil prices and the rupee’s trade against the US Dollar.
The headline indices finished the week in the red. The 30-share Sensex closed at 75,237.99, down by 160.73 points or 0.21 per cent. On the other hand, the Nifty 50 closed the session at 23,643.50, down by 46.1 points or 0.19 per cent. Indian equities came under pressure during the week amid mounting uncertainty and the rupee falling to a fresh record low against the US dollar.
The opening session on Dalal Street for May 18 is likely to be volatile, with market sentiment remaining cautious. Several factors are expected to impact the upcoming trading session, including the geopolitical standoff in West Asia, continued rise in crude oil prices and the rupee’s trade against the US Dollar.
Geopolitical Standoff in West Asia
Tensions between Washington and Tehran are expected to keep the financial markets on edge. Earlier, on May 15, Iranian Foreign Minister Abbas Araqchi said that Tehran maintains no trust in the United States. Araqchi added that Iran will take part in negotiations only if the US demonstrates absolute seriousness. The minister expressed readiness for both diplomatic solutions and renewed conflict. On the other hand, US President Donald Trump has stated that he is ‘losing patience’ with Iran. The rhetoric between the two leaders is set to directly impact trade as investors typically trim exposure to high-risk assets when global conflict risks escalate.
Rising Crude Oil Prices
Amid the friction in West Asia, global energy markets are experiencing renewed upward pressure. In the past week, Brent crude prices flared up by as much as 8 per cent, with the Friday session ending over 3 per cent higher to settle near the $109 per barrel mark. Even though a ceasefire remains in place, expectations of a reopening of the Strait of Hormuz have diminished significantly. For Indian equities, this elevated crude price acts as a major roadblock. India relies heavily on energy imports and thus faces immediate concerns over ballooning import costs, fiscal deficit expansion, and corporate margin compression across most sectors.
Trump-Xi Beijing Summit
The high-stakes meeting between President Trump and President Xi Jinping in Beijing concluded on May 16. The two leaders have reportedly agreed to prevent Iran from developing nuclear weapons and to ease passage through the Strait of Hormuz. Investors are expected to dissect the nuances of the meeting to gauge global risk appetite. Even as the outcome of the deal is not completely clear, the reduced chances of an immediate escalation in US-China trade friction provide a minor sigh of relief. The net impact on D-Street is expected to be selective, keeping export-oriented sectors operating under a cloud of cautious observation.
Capital Flight and a Record Low Indian Rupee
A weakening currency and rising global treasury yields are expected to create downward pressure on the domestic macroeconomic environment. Concerns around inflation have made global bond yields edge higher, shrinking liquidity, and diverting foreign capital away from emerging markets. As bond yields rise, the Indian rupee has slipped past the historic low mark of Rs 96 against the US dollar, pressured by persistent outflows of foreign capital and weak net foreign direct investment inflows. The rapid monthly currency depreciation is likely to dampen investor sentiment and trigger capital flight as foreign institutional investors liquidate domestic holdings to prevent currency-induced portfolio losses.
NSE Launches Electronic Gold Receipts Trading
Even as the equity market continues to grapple with volatility, a significant structural development is set to take place. The National Stock Exchange is set to commence trading in Electronic Gold Receipts on May 18. According to details released by the exchange, these securities will represent direct ownership of physical gold stored securely in regulated vaults, allowing investors to buy and sell gold in demat form with a T+1 settlement cycle. Since Electronic Gold Receipts offer an alternative, highly liquid, and secure avenue for capital, the launch is likely to draw a portion of liquidity away from the volatile equity segments as traders seek a safe haven from geopolitical risks.
Anticipated Sectoral Rotation on Dalal Street
As a surging US dollar, high crude prices continue to put pressure on Indian equities, a sharp sectoral rotation is anticipated. Investors are expected to monitor oil-dependent sectors such as aviation, paints, and tyre manufacturers as inputs become more expensive. Conversely, domestic upstream oil exploration companies are likely to find tactical support from elevated Brent Crude prices. On the other hand, fast-moving consumer goods and select pharmaceutical sub-sectors and other sectors, which are typically viewed as defensives, are likely to be in focus amid the volatility.
