War-driven selloff erodes $447 bn off India mcap, close to Covid crash

Even as a crude-laden Indian tanker sailed safely from UAE's Fujairah and Tehran claimed Hormuz is closed for its 'enemies', the war continues to rattle many sectors

(This report has been updated to correct an error in the previous version)  India’s market capitalisation has declined by about $447 billion to $4.7 trillion since the start of the war in West Asia, mirroring in absolute terms the erosion seen during the Covid-19 market meltdown in March 2020. The selloff has been compo­unded by relatively stretched valuat­ions following the strong rally of the past two years, leaving the market with limited cus­hion against global shocks.

 

Developments surroun­ding the conflict and mov­e­ments in crude oil prices are expected to remain the key drivers of equity market trends this week.

 

Benchmark indices had been trading at a premium to most emerging markets. At the start of the month, the Nifty 50 traded at 19.5 times its one-year forward earnings estimates. After the recent market decline, the price-to-earnings (P/E) ratio has fallen to 17.8 times, though it remains higher than most emerging market peers.

 

Globally, the selloff has been even steeper. World market capitalisation has fallen by more than $8.5 trillion to $148.9 trillion, with the US alone accounting for nearly $2.75 trillion of the decline.

 

The US’ total market cap currently stands at $69.3 trillion, compared with $72 trillion at the start of this month. Japan, France, Germany and South Korea are among the other major markets to have suffered a sharp dent in market value amid intensifying war between the US-Israel and Iran. 

 

During the Covid-hit month of March 2020, India’s market capitalisation had declined by $508 billion to $1.5 trillion, while global market value had slumped by $11.7 trillion to $68.5 trillion. During that episode, the Nifty 50’s P/E had declined from 16.3 times to 13 times by the end of March 2020.

 

The broad-based fall across markets underscores growing investor anxiety that the escalating conflict could undermine global economic growth and trigger supply shocks. 

 

A sharp spike in global crude prices and fears of prolonged disruption to energy supplies through the Strait of Hormuz, a critical artery for global oil trade, have unsettled financial markets. Brent crude, which was around $70 a barrel before the outbreak of the war, is currently trading at about $103 a barrel.

 

The risks from the surge in oil prices are particularly acute for India, one of the world’s largest crude importers. Because India imports more than 80 per cent of its crude oil requirement, the jump in prices leaves its economy highly sensitive to instability in oil-rich West Asia.

 

A sustained rise in crude prices could push up input costs for companies, widen the current account deficit, weaken the rupee and fuel inflationary pressures. Together, these factors could weigh on corporate profitability and damp investor sentiment.

 

Persistent foreign portfolio investor (FPI) outflows have added to the pressure. Overseas investors have been trimming exposure to emerging markets amid rising geopolitical risks and a shift towards safer assets such as US Treasuries and the dollar. So far this month, FPIs have sold shares worth more than ₹64,000 crore ($7 billion).

 

According to market participants, volatility could persist in the near term as investors closely track developments in West Asia and their implications for energy prices and global trade flows.