Domestic equity benchmarks witnessed significant selling pressure during the week, with the market impacted by elevated crude oil prices, rising global bond yields, escalating US–Iran tensions and concerns over inflation. Investors remained cautious as Brent crude crossed the psychologically important $100-per-barrel level, raising concerns about India's import bill, inflation and corporate profitability. Last week, the market started the week on a weak note and extended losses for three consecutive sessions. Domestic index Sensex declined 1,733.67 points, or 2.27%, to 74,781.76, while the Nifty 50 fell 499.60 points, or 2.09%, to 23,398.10 during the week. Broader markets also remained weak, with the BSE 150 Mid-Cap index declining 1.40% and the BSE 250 Small-Cap index falling 0.77%. A late recovery on Thursday, supported by buying at lower levels and gains during the closing auction, temporarily halted the decline. However, renewed geopolitical concerns and higher crude prices triggered selling again on Friday. Despite the correction, India's strong 7.8% Q1FY27 GDP growth, resilient services activity and improving structural fundamentals provide a medium-term cushion.
Global markets remained volatile during the week as investors assessed escalating Middle East tensions, rising energy prices, persistent inflation and changing expectations for Federal Reserve policy. US equities initially remained under pressure but recovered on Friday as crude oil prices retreated from their weekly highs. The Dow Jones Industrial Average gained 0.98% on Friday to 52,573.29, while the S&P 500 rose 0.86% to 7,656.98 and the Nasdaq advanced 0.96% to 26,333.04. Despite Friday's recovery, the indices remained negative for the week, with the Dow declining 1.6%, the S&P 500 falling 0.8% and Nasdaq losing around 0.7%. US inflation remained an important concern. August CPI increased 0.4% month-on-month and 3.4% year-on-year, while core CPI rose 0.3% month-on-month. Strong employment data, combined with higher energy prices, has increased uncertainty around the future path of interest rates. Asian markets received some support from Japan's upwardly revised Q2 GDP growth of 1.4% annualised. China's CPI accelerated to 0.8% year-on-year in August, while PPI inflation also strengthened to 3.8%, partly reflecting higher energy and metals prices. European markets remained sensitive to inflationary pressures, with the ECB raising its key interest rate by 25 basis points to 2.50%. Overall, global markets are likely to remain highly headline-driven, with the Fed decision, crude oil and Middle East developments dominating investor sentiment.
The US–Iran conflict remained the most important geopolitical risk for global markets during the week. Escalation in the Middle East pushed crude oil prices above $100 per barrel and raised concerns that the conflict could become prolonged. The key concern for investors is the potential disruption to energy transportation through the Strait of Hormuz and Bab el-Mandeb, both of which are critical routes for global oil trade. The situation became more complicated after Saudi Arabia temporarily shut its East-West crude pipeline as a precautionary measure following drone attacks. The Saudi pipeline has a capacity of approximately 7 million barrels per day and is strategically important because it provides an alternative route for moving crude towards Red Sea export terminals. Any prolonged disruption to regional energy infrastructure could significantly tighten global oil supply. At the same time, reports of diplomatic discussions involving Iran and Gulf states provide some hope of de-escalation. Markets will therefore remain extremely sensitive to every development. For India, prolonged conflict would be negative because higher crude prices can increase the import bill, inflation and pressure on the rupee. It could also affect transportation, chemicals, aviation and other energy-intensive sectors. A meaningful de-escalation could trigger a sharp correction in crude and provide relief to global equities, while further escalation could push oil towards previous highs and increase market volatility.
Crude oil remained the biggest source of concern for global and Indian markets during the week. Brent crude settled at $104.61 per barrel, while WTI closed around $100.05, after both benchmarks moved above $100 during the week. Brent gained approximately 8.7% for the week, while WTI advanced around 9.4%. The rally was primarily driven by escalating Middle East tensions, concerns around the Strait of Hormuz and attacks affecting Saudi energy infrastructure. Brent briefly moved towards $108 per barrel, highlighting the extent of the geopolitical risk premium. The near-term crude outlook remains highly volatile and dependent on geopolitical developments. Any further attacks on oil infrastructure or shipping routes could push Brent towards $110 and potentially higher. Conversely, diplomatic progress could lead to a sharp correction as investors unwind the geopolitical premium.
India's economic fundamentals continue to provide an important cushion despite rising external risks. The economy expanded 7.8% year-on-year in Q1FY27, with the IMF describing India as a key engine of global growth. The IMF highlighted services and exports as important contributors to growth and noted that India has shown resilience despite the energy-price shock. The country's crude requirement remains substantial. According to the latest OPEC update, India's crude imports averaged 5.1 million barrels per day in July, increasing approximately 6% month-on-month and 13% year-on-year. Russia remained the largest supplier, accounting for 56% of imports, followed by the UAE at 9% and Saudi Arabia at 8%. Government and monetary indicators remained broadly stable. Currency in circulation stood at ₹42.85 lakh crore as of August 31, while reserve money reached ₹52.76 lakh crore. Currency in circulation increased 12.3% year-on-year, reflecting continued liquidity and economic activity. Agricultural indicators were comparatively mixed. Overall kharif sowing stood at 1,086.31 lakh hectares as of September 4, down 1.6% from the corresponding period last year and slightly below the normal area. Rice acreage declined 3.74%, while pulses acreage increased 1.6%. The government continues to emphasise India's long-term growth potential, with a stated ambition of becoming a $30 trillion economy by 2047. Initiatives around digital infrastructure, UPI, local-currency trade and BRICS cooperation could support India's longer-term economic integration. However, the immediate challenge remains elevated crude oil. If oil prices remain above $100 for an extended period, inflation, trade balance and corporate margins could come under pressure. Thus, strong domestic growth remains a positive structural factor, but external energy shocks are likely to remain the key near-term risk.
US Treasury yields remained elevated as investors assessed persistent inflation, strong employment conditions and the possibility of additional Federal Reserve rate increases. The 2-year Treasury yield moved above 4.60%, reaching its highest level since July 2024. The rise reflects increasing expectations that the Federal Reserve may need to maintain a restrictive policy stance despite concerns around economic growth. The latest US CPI report showed headline inflation increasing 0.4% month-on-month and 3.4% year-on-year in August, while core CPI increased 0.3% month-on-month. Higher energy prices remain an important inflationary risk. The bond market is now closely focused on the Federal Reserve's upcoming monetary-policy decision. Market expectations had moved significantly towards a rate increase, while investors are also watching the Fed's forward guidance to assess how many additional hikes may be required. Higher US yields are generally negative for emerging markets because they can increase the attractiveness of US fixed-income assets and encourage global investors to reduce exposure to riskier assets. For India, a sustained rise in US yields could put pressure on FII flows, the rupee and equity valuations.
The Indian market is likely to remain volatile with a cautious bias during the coming week. The major drivers will be crude oil prices, US–Iran developments, Federal Reserve policy, US inflation expectations and foreign institutional flows. From a technical perspective, the Nifty's immediate support zone is around 23,000–22,800, while the key resistance zone is placed between 23,700–24,000. Sustained buying above 23,700–24,000 would improve market sentiment and could signal a recovery towards higher levels. Conversely, a decisive break below 23,000 could increase selling pressure and expose the index to further downside. The near-term outlook remains cautious with high volatility. India's strong economic growth and resilient domestic fundamentals provide medium-term support, but the combination of crude above $100, geopolitical escalation, elevated US bond yields and monetary-policy uncertainty could limit market recovery. Investors should therefore avoid aggressive positioning during periods of geopolitical uncertainty and focus on quality companies with strong earnings visibility, healthy balance sheets and pricing power.