Indian equity benchmarks staged a recovery on Wednesday, with the Nifty 50 climbing 0.67% to 23,535.05 and the Sensex gaining 0.48% to hover near 74,913 by early afternoon. The bounce came after a sharp four-day selloff that erased nearly 4% from the indices, as investors weighed a mix of supportive and cautionary signals.
The rebound was fueled by a slight easing in crude oil prices, which had surged above $100 per barrel on supply disruption fears linked to the Iran conflict. A modest stabilization in the rupee, which had been plumbing record lows, also provided relief. Additionally, the Indian government raised import duties on gold and silver to 15%, a move aimed at curbing dollar demand and supporting the currency.
Precious metals rallied sharply on the tariff hike. Domestic gold futures surged 7.2%, while silver futures jumped 8% in early trade. Gold and silver ETFs tracked higher, but jewellers such as Titan, Kalyan Jewellers, and Thangamayil declined as the market priced in weaker demand and higher working-capital requirements. The policy shift redirected flows toward the metals themselves rather than the retail outlets.
Metals stocks led the broader market advance. Hindustan Zinc and Vedanta gained as much as 5% on the back of the duty increase and stronger silver prices. However, other sectors remained under pressure. Auto, IT, banking, and realty stocks all traded lower, reflecting a cautious rotation rather than a broad-based risk-on move.
The rupee remains a central concern for investors. India imports nearly 90% of its crude oil and about 50% of its natural gas, and the recent energy shock is expected to push the current account deficit to 2.5% of GDP by FY27, up from 0.9% last year. Since the start of the Iran war, foreign investors have pulled more than $20 billion out of Indian stocks, and the rupee has depreciated over 5%, scraping a fresh record low this week.
Foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) offloaded Indian stocks worth ₹1,959 crore on May 12, even as domestic institutional investors (DIIs) stepped in with purchases of ₹7,990 crore. Year to date, foreign outflows have reached ₹2.61 lakh crore, while DIIs have bought ₹3.26 lakh crore. This domestic buying has cushioned the market, but the underlying foreign exodus has not reversed.
The rate environment has also shifted. RBI Governor Sanjay Malhotra signaled that while monetary policy can overlook short-lived supply disruptions, intervention becomes likely if inflation turns sticky. He warned that it is only a matter of time before higher fuel costs begin to affect consumers directly if Middle East tensions persist. April's retail inflation came in at 3.48%, still below the RBI's 4% target, but food inflation rose to 4.2%, and rising energy costs pose an upside risk.
On the bullish side, Morgan Stanley's Ridham Desai expects the Sensex to climb to 89,000 by June 2027, citing a mid-cycle earnings pause that he believes India is shaking off. The bull case hinges on macro stability, firmer private investment, and strong domestic demand. If crude prices fall further and the rupee stabilizes, today's bounce could trigger short-covering. However, the bearish view remains sharp: the U.S. Energy Information Administration is working on a scenario where the Strait of Hormuz remains effectively shut through the end of May, with Middle East oil supply losses peaking at 10.8 million barrels per day this month, keeping Brent under pressure.
