A day after benchmark indices jumped nearly 4 per cent and the Sensex posted its best session in over five years, domestic equity markets pulled back on Thursday as global risk appetite weakened and optimism over the US-Iran ceasefire faded.
The Sensex fell 931 points, or 1.2 per cent, to close at 76,632, while the Nifty 50 declined 222 points, or 0.9 per cent, to settle at 23,775. The drop marked the steepest single-day decline for both indices since March 30.
Brent crude prices edged up to about $99 a barrel but recovered to $95.80 (at 8.50 pm IST) after Israel said it would start direct negotiations with Lebanon. The rupee snapped its five-day winning streak and government bond yields climbed again.
The rupee weakened to 92.94 per dollar intraday before recovering slightly, likely aided by the Reserve Bank of India’s intervention via dollar sales. It settled at 92.66, compared with the previous close of 92.58.
The yield on the benchmark 10-year government bond rose 6 basis points to settle at 6.96 per cent.
Broader markets were more resilient, with smallcap and midcap indices ending in the green. As a result, the total market capitalisation of BSE-listed firms slipped only marginally, down around ₹72,000 crore to about ₹444.8 trillion. Investor sentiment turned cautious after Washington and Tehran accused each other of violating the ceasefire announced a day before, following nearly six weeks of hostilities. A key point of contention is whether the truce also covers Israel’s ongoing military operations against Hezbollah in Lebanon.
Despite heightened rhetoric, there were tentative signs that the ceasefire was largely holding, with a noticeable decline in attacks across the Persian Gulf region.
Amid the volatility, Morgan Stanley remained constructive on the medium-term outlook. Ridham Desai, head of India research and chief India equity strategist at Morgan Stanley, said domestic equities could be on the cusp of a sharp move, supported by improving macro signals and attractive valuations.
“The market appears set up for a big move: The trailing 12-month performance is almost the worst in history and relative valuations are at previous troughs,” Desai said, assigning a Sensex target of 95,000 for December 2026.
Market breadth remained mixed, with 2,180 stocks declining and 2,121 advancing on the BSE. Sectoral trends were also evenly split.
Financials led the losses, with the Nifty Financial Services, PSU Bank, and Private Bank indices each falling over 1 per cent. In contrast, metal and health care stocks bucked the broader weakness.
More than two-thirds of Sensex constituents ended in the red, with HDFC Bank, down 2.3 per cent, being the biggest drag on the index.
Experts said the key question for investors was whether negotiations would lead to a durable de-escalation, and how the conflict might impact global growth and corporate earnings.
“Ceasefire-led optimism faded as renewed US-Iran tensions pushed crude higher, reviving concerns around India’s inflation. If crude sustains at elevated levels, earnings downgrades for FY27 could re-emerge. That said, valuations remain supportive after the recent correction, and any durable geopolitical progress could quickly restore confidence in the medium-term earnings trajectory,” said Vinod Nair, head of research at Geojit Financial Services.
Foreign portfolio investors (FPIs) sold shares worth ₹1,711 crore, while domestic institutional investors bought equities worth ₹956 crore. For a second straight session, the intensity of FPI selling remained well below the average of around ₹7,000 crore per session seen since the conflict began.
