Stock market rout deepens as HDFC Bank shock meets West Asia turmoil

MUMBAI: Selling in banking heavyweights led a broad market selloff on Thursday, pulling benchmark indices sharply lower as weakness in private lenders combined with rising global risk aversion.

Financials bore the brunt of the decline, with sentiment in private banks turning cautious amid both stock-specific concerns and a wider risk-off mood. The Nifty Private Bank index was among the worst performers, second only to Nifty Realty, which fell 3.3%.

At the centre of the selloff was HDFC Bank, whose shares plunged over 8% to a 52-week low of ₹772 following an unexpected leadership change that raised governance concerns.

The bank said its part-time Chairman and independent director, Atanu Chakraborty, has stepped down, with Keki Mistry appointed as interim part-time Chairman for three months, subject to approval from the Reserve Bank of India.

At 11:30 am, the Nifty 50 was down 2.2% at 23,246.75, while the S&P BSE Sensex fell 2.3% to 74,966.30. The broader market weakened as well, with the Nifty Midcap 100 down 2.2% and the Smallcap 250 falling 1.6%.

The selloff came against a jittery global backdrop.

Oil shock

Iran’s escalation, marked by strikes on critical energy assets across neighbouring Middle Eastern nations, has triggered a sharp oil price shock and raised the risk of a prolonged period of elevated energy prices, explained Nirav Karkera, head of research and fund manager of PMS division at Fisdom. The FOMC has also flagged this as an upside risk to inflation, he said.

“The combination of a deeper conflict phase and persistently higher crude prices is weighing on global markets, with a pronounced shift towards risk-off sentiment.”

Volatility surged, as indicated by the rise in fear gauge also known as India VIX index. India VIX gained 15% on Thursday.

Geopolitical tensions escalated after Iran stepped up its retaliation following the strike on South Pars, targeting key Gulf nations including Qatar, Saudi Arabia and the UAE. The flare-up kept investors on edge, denting risk appetite. Adding to the unease, the US President warned Iran against further retaliation after the attack on Qatar’s Ras Laffan energy complex, sending fresh ripples across global markets.

Global cues remained firmly negative. US equities ended sharply lower, with the S&P 500 and Nasdaq falling 1.4% and 1.5%, respectively, while the weakness spilled over into Asia - Nikkei dropped over 3%, Hang Seng declined 2%, Kospi slipped 2.6%, and the Shanghai Composite was down 1.3%.

Fed caution

What further dampened sentiment was the stance of the US Federal Reserve, which held rates steady and signalled just one rate cut this year as it assessed risks from rising oil prices and the US-Israel conflict with Iran.

Fed Chair Jerome Powell flagged uncertainty around the oil shock and noted that progress on inflation has been limited, warning that persistent tariff-led price pressures and conflict-driven energy costs may not be transient. He added that the Fed would need to see core inflation ease as tariff effects pass through the economy.

What it means is - higher US inflation can keep interest rates elevated, strengthening the dollar and triggering foreign outflows from India, which pressures the rupee and equities. It also raises global borrowing costs and risk aversion, often leading to volatility in Indian markets and tighter liquidity conditions.

The dot plot showed no change with one cut each getting signaled in 2026 and 2027, said Ionic Wealth report by Angel One.

“The pause restricts weaker dollar and therefore hurts the EM trade which will see perils of both higher energy prices and weaker currency. RBI is also likely to face similar dilemma and is now unlikely to cut in April,” the report pointed out.

Kotak Institutional Equities sees the recent correction in the market and stock prices due to the ongoing conflict between Iran and Israel-US and resultant dislocations in stock prices as an opportunity to add ‘better’ stocks, remove ‘narrative’ stocks and reduce positions in expensive cement and consumer stocks.

“A churn in portfolios may be the best option, given the circumstances.”