Iran moves to close Strait of Hormuz. Should investors fear a Nifty crash in coming days?

Indian equities may face another volatile week as the closure of the Strait of Hormuz and fresh US strikes on Iran raise the risk of higher crude oil prices, foreign outflows and pressure on the rupee. The immediate concern for Dalal Street is oil as India imports a large part of its crude requirement, and any disruption in the Strait of Hormuz can quickly feed into inflation, current account worries and corporate margins.

Reuters reported that the US launched fresh strikes after accusing Iran’s IRGC of attacking the Cyprus-flagged cargo ship M/V GFS Galaxy in the Strait of Hormuz. Iran has said the strait will remain closed until further notice, while the US has demanded that all shipping lanes be reopened.

For investors, this means the Nifty may see pressure in the coming days if crude prices rise sharply again. The index already snapped a four-week winning streak last week. The Sensex fell 0.25% to 77,569, while the Nifty slipped 0.26% to 24,207. Broader markets held up better, with midcap and smallcap indices gaining more than 1%.


The market reaction in the lead-up

The Nifty recovered a large part of its mid-week losses, helped by better sentiment in banking and IT stocks, along with the early start to the Q1 earnings season. TCS results were broadly in line and helped calm some concerns around the IT sector.

Also Read: Will Nifty, Sensex extend gains on Monday? Q1, oil among 5 major factors investors must track

Vinod Nair, Head of Research at Geojit Investments, said Indian equities had a volatile week as early optimism gave way to risk aversion after tensions in West Asia pushed crude prices higher. "However, the sell-off proved to be short-lived, as investor sentiment improved markedly following encouraging Q1 business updates from the banking and IT sectors," he said.

The next few sessions will depend on crude oil, earnings and macro data. If Brent crude moves sharply above $80 per barrel and stays there, sectors such as oil marketing companies, aviation, paints, chemicals and tyres may face pressure. Higher oil prices can also raise inflation expectations and reduce the chance of policy support.

Banks, IT, Pharma, defence and select realty names may hold up better if earnings commentary remains steady. Banking has shown relative strength, and investors are watching asset quality, deposit growth and margin trends. IT stocks have seen some relief after heavy selling, though commentary on discretionary spending and AI-led changes will remain important.

Technical views

Technically, the Nifty has an immediate support zone around 23,800-24,000. Analysts say a break below this zone can increase selling pressure and take the index towards 23,650. "On the higher side, the 24,400-24,600 range remains the first hurdle. A move above that zone can improve sentiment and open the way for a test of 25,000," said Ajit Mishra of Religare Broking.

Meanwhile, Bank Nifty remains stronger than the broader index. A move above 58,800 can support a further rally towards 60,000. On declines, the 56,400-57,300 zone is expected to act as support, Mishra said.

Investors will also track inflation data as a delayed rainfall in some regions has kept concerns over food prices alive, while crude adds another external risk. June CPI, WPI, trade balance and foreign exchange reserves data will give a clearer picture of how much stress the economy may face if oil remains elevated.

Global cues

In the upcoming week, foreign investors may reduce risk if the Iran-US conflict widens or if oil continues to rise. After four straight months of selling, FIIs have turned net buyers of Indian equities in July, investing over Rs 15,157 crore so far this month, supported by improving domestic macroeconomic indicators, a stable rupee and better global risk sentiment.

The latest inflow follows net outflows of Rs 49,340 crore in June, Rs 32,963 crore in May, Rs 60,847 crore in April and a massive Rs 1.17 lakh crore in March

At the same time, any easing of tensions or reopening of shipping lanes can quickly support sentiment. Q1 earnings, oil prices and global risk cues will be among the main factors for Indian markets in the coming week.

Nair said sustained Q1 earnings outperformance could strengthen confidence in the FY27 earnings outlook and help revive FII inflows. He also said moderation in crude prices and easing geopolitical tensions can improve sentiment.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)