Oil tops $100, rupee breaches 95/$ as stocks reel on US-Iran tensions

The benchmark Nifty 50 fell to a three-month low on Wednesday as Brent crude rose above $100 a barrel for the first time in six weeks amid an escalation in fighting between US and Iranian forces. The rupee also weakened past 95 to the dollar, prompting the Reserve Bank of India (RBI) to intervene in the currency market.

The simultaneous moves underscored investor concerns about inflation, interest rates, and global growth.

The Nifty 50 fell 0.86 per cent to 23,431.50, its third consecutive session of losses and its lowest close since June 11. The Sensex fell 1.08 per cent to 74,764.23.

Brent is now 39.5 per cent above its July 1 low of $72.02 a barrel, while the Nifty 50 is down 2.4 per cent over the same period.

A 1 per cent rise in Brent has historically been associated with a 0.065 per cent fall in the Nifty 50, with oil accounting for about a tenth of the variation in the index’s daily moves. Wednesday’s 1.3 per cent rise in Brent would imply a fall of roughly 17 Nifty points, compared with the actual 204-point decline.

Thus, costlier oil alone does not explain the scale of Wednesday’s equity decline.

IT selloff

IT stocks were the biggest drag on the benchmark, accounting for about 87 points of the Nifty 50’s 204-point decline. Investors worried that high oil prices, elevated US bond yields and a potential global growth slowdown could prompt companies to defer technology spending.

Infosys fell 4.4 per cent to about ₹1,032, extending its decline to roughly 10 per cent over six consecutive sessions. Coforge fell 5.48 per cent, the biggest decline among the 500 largest companies by market capitalisation, after its non-executive Chairman O P Bhatt resigned with immediate effect following an internal audit that flagged disclosure gaps. Tech Mahindra fell 3.27 per cent, Wipro 2.62 per cent and TCS 2.11 per cent.

The Nifty 50’s IT constituents lost about ₹58,519 crore in market value, or 42.9 per cent of the index constituents’ total ₹1.36 trillion decline.

Options traders positioned for a fall in Infosys benefited sharply. The ₹1,020-strike put expiring on September 29 rose from ₹8.05 to ₹21, a gain of 161 per cent, while the ₹1,040 put more than doubled to ₹30.05.

“Higher oil means inflation stays sticky, rate cuts get delayed, and sectors like aviation, chemicals, and logistics see their margins shrink,” said Ajitabh Bharti, co-founder and executive director of CapitalXB. “IT faces slower revenue growth and margin pressure.”

For fintech companies, the impact is more mixed, Bharti said. Higher-for-longer rates could weigh on loan demand, while payment volumes and digital adoption could continue to grow if incomes and employment hold up. A weaker rupee would raise the cost of imported cloud and technology services, but could also improve the competitiveness of India’s export-oriented technology and services companies.

₹ under pressure

The rupee fell through the 95-per-dollar level for the first time in about two weeks, touching 95.23 before recovering to close at 95.11. It has weakened 4.34 per cent since the start of the West Asia war, although it remains 0.07 per cent stronger so far this month.

The currency remained under pressure as higher crude prices increased demand for dollars and dollar outflows added to selling pressure. The RBI intervened through spot dollar sales to contain volatility, dealers said.

“The crude price surge has again put pressure on rupee. There was intervention by the RBI via spot dollar sales,” said a dealer at a private bank. “There was speculation of central bank sell-buy swaps, which helped the local currency trim early losses.”

RBI swaps

The central bank also likely conducted near-maturity dollar-rupee sell-buy swaps for September and October maturities to absorb surplus rupee liquidity, according to dealers. The RBI may have transacted at least $1 billion across the two tenors, they said.

The potential swaps come against a backdrop of unusually high liquidity in the banking system. Banks mobilised nearly $128 billion through FCNR(B) deposits under the RBI’s special swap facility, pushing net liquidity to around ₹11 trillion.

Forward premiums for September and October rose about 2.5 paise and 4 paise respectively following the likely transactions. The one-year dollar-rupee forward implied yield rose 11 basis points to 3.16 per cent, its highest level in more than three months.

Market participants said the relatively weak response to the RBI’s 30-day variable-rate reverse repo operation earlier this week had strengthened the case for foreign-exchange sell-buy swaps to withdraw surplus liquidity without putting pressure on bonds and other financial markets. Lenders had proposed the approach at a meeting with the central bank last week.

The overnight weighted average call rate, the operating target of monetary policy, traded below the Standing Deposit Facility rate and settled at 4.98 per cent, unchanged from the previous close.

Currency outlook

The near-term outlook for the rupee will depend heavily on oil prices and the RBI’s intervention.

“Oil prices and the pace of RBI intervention are likely to remain the key drivers for the rupee in the near term,” said Dilip Parmar, senior research analyst at HDFC Securities. “The currency’s sharp fall past the 95 mark reflects how quickly sentiment can turn when crude spikes alongside geopolitical risk.”

Parmar expects the spot rupee to trade within a range, with resistance at 95.35 and support at 94.80.