The Nifty fell 246.9 points, or 1.1%, to 22,272.50. The Sensex declined 845.12 points, or 1.14%, to 73,399.78 in a volatile trading session that saw mixed responses across the Asia-Pacific to this weekend’s Iranian drone attacks on Israel. China advanced 1.26%, Hong Kong fell 0.73%, South Korea declined 0.42%, and Taiwan dropped 1.38%.
The rupee, meanwhile, closed at 83.45 per US dollar, slightly weaker than 83.41/$1 on Friday, on likely dollar sales by the central bank, dealers said. The previous record closing low for the local unit was 83.4450/$1.
“On Monday, India felt the impact of geopolitical tensions in the Middle East,” said Sriram Velayudhan, Senior VP Alternative Research, IIFL Securities.
Vodafone Idea FPO
“The likely unwinding of retail leverage and the impending Vodafone Idea FPO worth Rs 18,000 crore would also have contributed to the fall,” Velayudhan said.
Some investors would have cashed out of existing positions to buy into the discounted telco FPO.
Although all sectoral gauges barring oil and gas declined through the trading session, analysts do not expect a significant retreat for stocks just yet.
“We do not see a steeper correction in the Nifty as recent geopolitical issues involving Iran are unlikely to cause durable shortages in oil supplies, thereby limiting a sharp uptrend in crude prices,” said Pankaj Pandey, head of research at ICICI Direct. “While we may keep seeing corrections of 5-10% at regular intervals, we advise investors to utilise this weakness to accumulate during this period.”
June contracts for Brent Crude oil retreated about a percentage point to $89.5 a barrel Monday evening.
Banking and financial stocks, which collectively have a disproportionate share in the Nifty, were among the biggest losers, led by Bajaj Finserv, ICICI Bank and HDFC Bank. The Bank Nifty retreated 1.63%.
Currency, Bonds
In the currency markets, the rupee had immediately weakened after the attacks Saturday in the offshore non-deliverable forwards (NDF) markets, but the unit recovered on likely dollar sales by the Reserve Bank of India (RBI) that reported a record reserves stockpile Friday.
“The Indian rupee, which had fallen to 83.60 in NDF after the attacks, recovered to 83.45 as there is no retaliation to date by Israel. FPIs were dollar buyers, while the RBI sold dollars to ensure the rupee didn’t weaken beyond 83.45,” said Anil Kumar Bhansali, head of treasury at Finrex Treasury Advisors.
He expects the rupee to trade in the 83.30-83.60/$1 range in the coming days.
Government bonds closed steady on Monday as favourable domestic factors, such as easing inflation and an official forecast of above-normal monsoons helped offset global concerns.
Yield on the 10-year benchmark bond closed flat 7.18%.
“After Iran attacked, there were expectations of a flare-up in oil prices and a similar movement in local yields. But with no immediate escalation, crude prices declined and that helped our markets,” said Debendra Kumar Dash, senior vice president, treasury, AU Small Finance Bank.
Dash said that yield on the 10-year bond would be capped at the 7.25% level for now.
The Nifty’s Volatility Index or VIX, a gauge for measuring uncertainty, jumped 8.1% to 12.47 during the day.
“We expect the VIX to rise further to 13.25 levels, indicating further volatility in the markets,” said Kapil Shah, Technical Research Analyst, Emkay Global.