Dalal Street came under heavy selling pressure on Wednesday, with the Sensex falling over 600 points and the Nifty slipping below the 24,250 mark, as a combination of renewed geopolitical tensions, rising crude oil prices and weakness in global technology stocks dented investor sentiment.
The latest sell-off comes after markets had rallied in recent weeks on easing oil prices, improving foreign investor flows and expectations of healthy June-quarter earnings. However, fresh developments in the Middle East and weakness in global markets have prompted investors to turn cautious once again.
RENEWED US-IRAN TENSIONS PUSH CRUDE OIL HIGHER
The biggest trigger for today’s decline is the renewed military escalation between the United States and Iran.
Brent crude surged over 2% to around $76 a barrel after the US launched fresh strikes on Iran, reigniting fears of supply disruptions in the Middle East.
For India, which imports nearly 85% of its crude oil requirement, rising oil prices pose a significant macroeconomic risk.
Higher crude prices increase the country’s import bill, widen the current account deficit, put upward pressure on inflation and can eventually hurt corporate earnings by increasing input costs.
This explains why sectors dependent on fuel costs and domestic consumption came under pressure soon after markets opened.
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the sudden spike in oil prices has pushed markets back into uncertain territory.
“With the renewed US-Iran tensions and the consequent spike in Brent crude to $76, the market is again back to uncertain territory. How long this would last and what would be its consequences are now in the realm of uncertainty,” he said.
WALL STREET’S AI SELLOFF SPREADS TO GLOBAL MARKETS
Apart from geopolitical worries, weakness in global technology stocks also weighed on investor sentiment.
Overnight, all three major US indices ended lower.
The Nasdaq Composite, which is heavily weighted towards technology companies, declined 1.16%, making it the worst performer among the major Wall Street indices. The S&P 500 fell 0.45%, while the Dow Jones Industrial Average slipped 0.25%.
The weakness was triggered by another round of selling in semiconductor stocks, raising fresh concerns about whether the artificial intelligence-driven rally can continue at the same pace.
Micron Technology and several other US chipmakers witnessed sharp declines, dragging the Nasdaq lower.
The negative sentiment quickly spilled over into Asian markets on Wednesday.
SAMSUNG EARNINGS FAIL TO IMPRESS INVESTORS
The sell-off gathered pace after Samsung Electronics announced another blockbuster quarter.
The company projected a 19-fold jump in April-June operating profit to 89.4 trillion won, marking its third consecutive quarter of record earnings.
However, instead of cheering the results, investors chose to book profits.
Samsung shares declined, while rival SK Hynix also came under pressure as markets questioned whether the extraordinary earnings growth driven by artificial intelligence can be sustained.
Daisuke Hashizume, Senior Strategist at Daiwa Securities, said investors remain unconvinced about the AI trade.
“Investors cannot fully regain their confidence in AI shares. Samsung Electronics flagged a strong outlook but the market was not convinced that prices will keep rising,” he told Reuters.
DEEPSEEK REPORT ADDS TO AI WORRIES
Adding to investor concerns was a Reuters report that Chinese AI startup DeepSeek is developing its own artificial intelligence chip.
If successful, the move could reduce the company’s dependence on major global chipmakers for training and running AI models.
The development has intensified concerns that the massive investments flowing into AI infrastructure and semiconductor companies may begin to moderate, prompting investors to reassess valuations across the sector.
The uncertainty has already led to sharp corrections in several AI-heavy markets over the past week, particularly in South Korea and Taiwan.
FIIS REMAIN A POSITIVE FOR INDIA
Despite today’s weakness, analysts believe one important positive for Indian markets remains intact.
Foreign institutional investors (FIIs) have turned net buyers after months of sustained selling. Foreign institutional investors (FIIs) bought Indian equities worth Rs 393.19 crore on Tuesday, while domestic institutional investors (DIIs) sold shares worth Rs 383.43 crore.
According to Vijayakumar, FIIs have purchased equities worth nearly Rs 1,991 crore over the past three trading sessions.
“The uncertainty surrounding the chip trade and the huge concentration risks associated with investing in three stocks are turning FIIs away from markets like South Korea and Taiwan and towards stable markets like India,” he said.
However, he cautioned that this positive trend could reverse if tensions in the Middle East escalate further and crude oil continues to rise.
WHAT SHOULD INVESTORS WATCH NOW?
For now, market participants are closely monitoring three key developments.
The first is whether tensions between the US and Iran escalate further.
The second is the direction of crude oil prices, which remain crucial for India’s macroeconomic outlook.
The third is the upcoming June-quarter earnings season, which will indicate whether corporate India can sustain earnings growth despite recent geopolitical and inflationary pressures.
Until there is greater clarity on these factors, volatility is likely to remain elevated in Indian equity markets.
