Lower crude, firmer rupee and easing volatility drive sharp rebound in Indian equities

Mumbai: Indian stocks rebounded on Monday from last week’s losses, its currency surged the most in nearly two months, and bond yields retreated to where they were mid-July after crude oil collapsed about 10% on mutual assurances by the US and Iran that they would halt military action.

The BSE Sensex rose 776 points, or 1.02%, to 76,835.8, while the NSE Nifty climbed 228.50 points, or 0.9%, to 23,995.9. Gains were more spectacular in the currency markets where the rupee, perilously close to its all-time low last week, climbed 66 paise to close at 95.91 to the US dollar.

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Bonds also rallied, with yields on the benchmark 10-year paper erasing last week’s rise to settle at 6.77%. Bond yields and prices move in opposite directions.In risk assets, midcap and smallcap stocks advanced, with the Nifty Midcap 150 rising 1.09% and the Nifty Smallcap 250 gaining 1.32%.

Brent crude futures fell more than 9% to around $89 per barrel. Lower crude prices are seen as a positive for India, helping ease inflation concerns.

Room for a Rate Cut
They will also help reduce pressure on the current account and the rupee.”Brent retreating from $115+ highs directly eases India’s twin vulnerabilities – a widening current account and CPI inflation (at 4.38% in June),” said Manish Bhandari, chief executive and portfolio manager, Vallum Capital. “It gives the RBI (Reserve Bank of India), which had revised FY27 inflation to 5.1% on energy costs, meaningful room to cut rates. The real opportunity, however, lies in Indian midcaps, the winners of the next cycle.”

Last week, the Sensex and Nifty fell 2.3% – their highest weekly fall since early May and March, respectively – after Brent crude futures rebounded and climbed above $100 for the first time since May in the wake of fresh conflict in the oil-rich region.

Investor confidence on Monday strengthened as easing Iran-US tensions pushed crude oil prices lower, reducing inflation concerns for India, according to Gaurav Garg, research analyst at Lemonn.

“Strong FPI inflows, a firmer rupee, and value buying in banking, auto and financial stocks further lifted the market, while optimism around Q1 FY27 earnings supported stock-specific gains. However, investors remained cautious ahead of this week’s US Federal Reserve policy decision and upcoming RBI policy, which could influence market direction,” Garg said.

Elsewhere in Asia, markets were mixed. China gained 1.15%, South Korea rose 0.9%, while Taiwan fell 0.05%. Hong Kong climbed 0.98%. The pan-European Stoxx 600 index was flat but on a rising note at the time of going to print.

At home, India’s Volatility Index (VIX) fell 9.7% to 12.66, indicating easing volatility and improving risk appetite among investors following the rebound.

On the technical front, Nifty nearly reclaimed the 24,000 mark and closed above its 50-day exponential moving average, indicating improving short-term momentum. Sensex also formed a strong bullish candle, suggesting easing selling pressure, said Chandan Taparia, head of derivatives & technicals, wealth management at Motilal Oswal Financial Services.

Foreign portfolio investors net sold shares worth Rs 1,688 crore on Monday, while domestic institutional investors were buyers to the tune of Rs 2,329 crore.

Sectoral trends remained broadly positive, with media emerging as the top performer, followed by IT, realty, mid and small healthcare, financial services, auto, pharma, REITs and chemicals. On the other hand, oil and gas, PSU banks, private banks, construction, metals and cement were laggards.