Domestic equity benchmarks ended the truncated week lower, with elevated crude oil prices, higher US Treasury yields and the Federal Reserve's rate decision weighing on investor sentiment. Concerns over rising energy costs and their potential impact on inflation, corporate margins and economic growth remained the key overhang. The Sensex declined 487.30 points, or 0.65%, to 74,294.46, while the Nifty 50 fell 51.70 points, or 0.22%, to 23,346.40. The BSE 150 Mid-Cap index remained unchanged at 16,859.15, while the BSE 250 Small-Cap index declined 0.32% to 7,202.89. The market was closed on Monday for Ganesh Chaturthi. On Tuesday, the Sensex declined 1.04% and the Nifty fell 1.19%, with Brent crude moving above $108 and the US 10-year Treasury yield crossing 5%. The market recovered on Wednesday as crude prices paused and bond yields moderated. Thursday remained largely range-bound as investors assessed the Fed's rate decision, while Friday ended marginally higher on the Nifty as crude and yields eased. Domestic inflation remained a concern, with CPI rising to 4.82% and WPI inflation reaching 9.92% in August. The sharp rise in energy prices could keep inflation expectations elevated.
Global markets remained volatile during the week as investors responded to elevated oil prices, rising Treasury yields and a renewed tightening cycle from the US Federal Reserve. The Fed raised its benchmark interest rate by 25 basis points to 3.75%-4%, marking its first rate increase since 2023. Its projections also indicated the possibility of another rate hike in FY27, keeping the global interest-rate outlook uncertain. US equities ended mixed. The Dow Jones declined 1.7% for the week, marking its third consecutive weekly decline, while the S&P 500 fell around 0.1%. The technology-heavy Nasdaq gained approximately 0.7%, supported by continued investor interest in artificial-intelligence-related companies despite higher interest rates. US inflation remains a key concern, with higher energy prices adding to price pressures. The Fed raised its 2026 headline PCE inflation forecast to 3.7%, while core PCE inflation was projected at 3.4%. At the same time, the central bank raised its 2026 GDP growth forecast to 2.3%. European markets also faced inflation concerns. UK CPI accelerated to 3.1% in August, while the Bank of England maintained its policy rate at 3.75%. In Japan, the Bank of Japan raised its policy rate to 1.25%, its highest level since 1995.
The US–Iran conflict remained a major driver of global markets, primarily through its impact on crude oil and energy transportation. Brent crude moved above $100 during the week and briefly approached $110 as concerns increased over potential disruptions to regional oil supplies. The situation around Saudi Arabia's East-West pipeline remained important. The pipeline was damaged following drone attacks and was subsequently shut as a precautionary measure. Saudi Arabia later announced a phased restoration, providing some relief to the oil market. However, risks remain elevated. Iran-aligned groups retain the ability to target energy infrastructure and shipping routes, while the Strait of Hormuz remains strategically important for global crude flows. The market is therefore closely watching whether the current supply disruption proves temporary or becomes more prolonged.
Crude oil remained above the psychologically important $100-per-barrel level despite easing towards the end of the week. WTI settled at $100.30 per barrel, while Brent closed at $103.87 on Friday. Brent had moved as high as $109.68 during the week before retreating following signs that Saudi Arabia was gradually restoring its damaged East-West pipeline. The correction suggests that markets are beginning to assess whether actual supply losses will be smaller than initially feared. However, the near-term outlook remains volatile. Middle East oil flows are estimated to be below normal levels, while continued attacks on Saudi infrastructure or shipping routes could create further disruptions. For India, sustained high crude prices would increase inflationary pressure and could negatively affect the rupee and corporate margins. Energy-intensive sectors such as aviation, chemicals, paints and tyres remain particularly sensitive.
India's macroeconomic environment remains resilient, although rising energy prices are creating renewed inflationary risks. Consumer price inflation increased to 4.82% in August from 4.45% in July, reaching its highest level since December 2024. Food inflation also increased to 5.95% from 5.52%, while higher transportation costs added to price pressures. Wholesale inflation remained particularly elevated, rising to 9.92% in August from 9.78% in July. Food inflation increased to 7.05%, manufacturing inflation reached a series high of 8.37%, while inflation in the fuel and power basket remained around 23%. The broad-based increase suggests that higher energy costs are increasingly feeding into the wider price structure. The latest inflation data could reduce the scope for near-term monetary easing and keep the RBI focused on managing inflation expectations. Higher crude prices remain a key external risk because India imports a significant portion of its crude requirements. On the policy front, the government approved an increase in the EPFO mandatory coverage wage ceiling to Rs.25,000 per month from Rs.15,000, which is expected to bring around 51 lakh additional employees under social-security coverage. India's textile sector also recorded strong export growth, with August exports rising 16.1% YoY to Rs.29,776 cr. Cumulative exports during April-August increased 10.3%. The government also introduced a minimis exemption from RCMC requirements for small-value exports up to Rs.3 lakh, aimed at reducing compliance costs for smaller exporters. Overall, domestic economic activity remains supported by structural reforms, exports and policy measures, but elevated crude prices and inflation represent the key near-term macroeconomic risks.
US Treasury yields remained elevated during the week, although the 10-year yield moderated from its multi-year high. The 10-year Treasury yield briefly crossed 5.0%, reaching around 5.04%, before retreating towards 4.94%. The rise in yields was driven by persistent inflation concerns, higher crude oil prices and the Federal Reserve's decision to raise interest rates by 25 basis points to 3.75%-4%. The Fed's updated projections indicated another potential rate increase in 2026, while the median policy-rate projection stood at 4.1% for year-end 2026. The central bank also raised its inflation forecasts, highlighting the challenge posed by higher energy prices. For emerging markets such as India, elevated US yields can reduce the attractiveness of domestic equities and increase pressure on foreign capital flows. Higher yields can also strengthen the US dollar and put additional pressure on emerging-market currencies. The US 10-year yield around 5% therefore remains an important risk indicator for Indian equities. A sustained decline in yields could support risk appetite, while another move above 5% may increase valuation and FII-flow pressures.
Upcoming Week Outlook
The upcoming week is likely to remain event-driven, although the domestic economic calendar is relatively light, as investors assess the impact of the Fed's rate hike, elevated crude prices, inflation and global bond yields. The focus will gradually shift towards domestic activity indicators and global growth data. From a technical perspective, the Nifty has support around 22,800–23,000, while the key resistance zone is placed at 23,700–24,000. Sustained movement above 23,700–24,000 could improve market sentiment, while a decisive break below 23,000 could increase downside pressure. At the same time, India’s underlying economic resilience, improving exports and continued government policy support provide a counterbalance. The key variable for Indian equities remains crude oil: a sustained decline in oil prices could ease inflation and improve market sentiment, while another sharp rise could increase pressure on the rupee, corporate margins and equity valuations. Investors should therefore closely track geopolitical developments, crude oil, bond yields and upcoming PMI data while maintaining a selective approach toward companies with strong balance sheets, pricing power and relatively stable earnings visibility.