The Indian rupee hit a record low for the second consecutive day, while key equity indices experienced their biggest single-day fall in six weeks. This decline was triggered by uncertainty surrounding US-Iran peace talks, which pushed oil prices higher, and Prime Minister Modi's austerity call, eroding market confidence and prompting dollar buying.

Dalal Street sees sharp selloff as rising oil and dollar rush hurt sentiment

Synopsis

The Indian rupee hit a record low for the second consecutive day, while key equity indices experienced their biggest single-day fall in six weeks. This decline was triggered by uncertainty surrounding US-Iran peace talks, which pushed oil prices higher, and Prime Minister Modi's austerity call, eroding market confidence and prompting dollar buying.

Mumbai: The rupee slumped to a record low for the second day running and key equity indices slumped nearly 2% on Tuesday, their biggest single-day fall in six weeks, after uncertainty over the outcome of the US-Iran peace talks sent oil prices higher.

US President Donald Trump said the ceasefire with Iran was on "life support" after Tehran's cold response to an American proposal to end the war, which, combined with Prime Minister Narendra Modi's austerity call, has eroded market confidence.

The Indian currency came under renewed pressure, closing at a record of 95.62 per dollar after touching an intraday low of 95.75. Traders attributed the latest bout of weakness to elevated oil prices and mounting concerns over the fiscal deficit outlook. The PM's appeal to the public also triggered a rush for dollars, traders said. The currency had previously settled at 95.31 to the dollar and remains highly sensitive to movement in crude oil prices.

The Nifty fell 436.3 points or 1.8% to close at 23,379.55. The Sensex declined 1,456.04 points or 1.9% to end at 74,559.24. On Monday, both indices had slipped 1.5-1.7%. The fall over the past two days has wiped off ₹16.8 lakh crore in BSE's market capitalisation. "Expectations of an early end to the war have also been reassessed after recent events," said Rakesh Vyas of Quest Investment.

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"Higher crude, combined with record rupee weakness, elevated gold imports and capital outflows, has soured sentiment in the markets," he said. Vyas, who is CIO and portfolio manager at Quest Investment Managers, said index heavyweight IT stocks also corrected on Tuesday due to renewed concerns over AI disruption and a weak demand outlook, sharpening the fall.

Crude prices inched up by over 3% on Tuesday to cross $107, while the Nifty IT index dropped 3.7%.

In the forex market, the Reserve Bank of India likely intervened at around the 95.50 and 95.75 per dollar levels through state-run banks to curb excessive rupee depreciation, traders said. Market participants added that sustained support for the currency will ultimately depend on attracting fresh dollar inflows into the country.

"Following the PM's comments, gold traders have grown increasingly anxious about the possibility of policy changes, maybe a potential increase in import duty rates," said Anil Bhansali, head of treasury at Finrex Treasury Advisors. "That uncertainty has triggered heavy dollar buying from the bullion traders over the past two sessions." He expects the rupee to trade between 95.25 and 96 per dollar on Wednesday. "Everyone is already aware of the situation around Hormuz and the blockade," said a trader at a private sector bank. "But when the PM comes out and asks the public to reduce consumption, it signals that there may be something more to worry about. Market participants are now bracing for possible policy changes, and that is triggering panic dollar buying."

The India Volatility Index (VIX), known as the fear gauge of the market, jumped 3.9% to 19.28 levels on Tuesday, indicating rising caution among traders.

Broader market indices underperformed the benchmark, as the Nifty Midcap 150 dropped 2.5% and Nifty Small-cap 250 fell 3%. Out of the total 4,410 stocks traded on the BSE, 782 advanced and 3,500 declined on Tuesday.

The trend remains "sell-on-rise," said Bhavya Shah, technical research analyst at Stoxbox.

"Traders should avoid catching falling knives, utilising temporary retracements to execute hedged shorts until a definitive base forms," he said. However, the 23,140-23,210 zone remains a strong support area for the Nifty, offering a tactical opportunity to build small long positions with defined risk, said Shah.

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