Oil Shock Sends Sensex Crashing — ₹19 Lakh Crore Gone in a Week!

Panic selling has struck the stock market. In just a week, the Sensex has declined 4300 points due to the selling, losing investors 19-20 lakh crores. Dalal Street is in panic selling due to the increased prices in crude oil and the West Asia geopolitical conflicts. Searching for the reason for the Sensex's decline, one would find the oil crisis due to the West Asia US-Iran conflict, a foreign capital crisis, and a weak rupee crisis.

When the Nifty is at 23200, the market is facing a significant decline. Realty, metal, auto, and oil and gas stocks have lost so much that defensive sectors have also suffered. The effects of the crude oil price crisis and the war on the stock market are significant.

What is the Sensex Market & Why is it Important

The Sensex market is one of the indicators of India’s economic status. It shows the average market movement of 30 of the largest companies traded on the Bombay Stock Exchange. When the Sensex crashes, it indicates a recession of the economy, which affects retail investors, mutual funds, and pension schemes.

The Sensex chart doesn’t look good. It opened the previous week at approximately 78,900, and by Friday it had fallen to 74,563, indicating a one-week decline of about 5.5%. It has had several extremely high intra-day swings, including a drop of 2,400 points on what has been dubbed “Bloody Monday.” The Sensex chart shows a clear trend and has been decreasing, confirming that the sentiment is bearish, as it dropped below the moving averages for the 50 and 200-day time spans. Analysts are watching the support level for 73,500, as it has been tested.

India’s total equity market capitalisation was close to ₹450 lakh crore before this drop. The ₹19 lakh crore evaporation represents about 4-5% of that value, and hundreds of thousands of demat account holders lost considerable amounts of their funds in a matter of days. This stock market crash India has bottomed the Sensex out at early 2025 levels, and has been a significant decline since the post-budget rally.

Cause of Today's Drop in Sensex. Let's Explain Oil Shock

If you searched for `why sensex down today`, Google lists the same answer repeatedly among all sites. The explanation reports crude oil price volatility. Brent crude oil went from about $80 to around $115 per barrel in just a few days due to a 28-30% surge. Once the price peaked and settled down to around $ 97 - 106, the damage had already been done.

Why do oil prices matter so much to the Sensex market? Since India is a net oil-importing country, it brings in over 85% of the oil it needs. A $10 increase in oil prices means an increase of about ₹ 1 lakh crore in the net oil-importing country’s annual import bill, which leads to inflation, increases the cost of oil, and makes the oil margins for companies lower. Oil companies such as HPCL and BPCL have seen stock prices drop by 5 - 7% each day due to subsidy fears.

The cause? An increase in oil prices due to the escalation of the war in West Asia. The ongoing conflict between the US and Iran has made traders afraid of disruptions in oil transportation from the Strait of Hormuz, an oil transit pathway of 20% of the world's traded oil. This made crude oil prices rise and made India feel the impact due to its dependency.

This month, foreign institutional investors (FIIs) sold Indian stocks amounting to over $49 billion. The Indian rupee also plummeted to an all-time low of 92.31 to the dollar. Thus, making imports more expensive and decreases market sentiment. Along with these factors, the foreign market also adversely affected the Indian market. The reason for the fall of the Sensex was the fears of war and increasing oil prices, making the answer to the question "why is Sensex down today" simply oil.

Stock Market Crash India Triggered by the Surge of Crude Oil Prices

The explosion of crude oil prices was not a one-off event. At the time of the US strikes, there was an expected 15 to 20 percent increase in oil prices. Thus, oil prices are expected to continue to rise. These strikes were the first to occur in the 2022 Russia-Ukraine war. The highest oil prices were recorded in 2022.

For India, the expected increase in oil prices is devastating. A rise of $1 in oil prices is expected to raise inflation by 30 to 40 basis points. There is expected to be a 10% sustained increase in inflation. It's hit household budgets by increasing the prices of domestic and commercial cylinders by 60 and 115 rupees, respectively.

In the Sensex market, Reliance Industries, ONGC, and state oil majors fell by between 4 and 6%. With demand for fuel affected, Maruti and Tata Motors also fell due to rising costs. A downturn in metal stocks was incited due to fears of a slowing economy. Defenses are IT stocks, and to a lesser extent, HUL.

There was a stock market crash India experienced a broad-based crash. The fall of mid and small-cap indices was greater than the benchmark indices, with some segments falling by 8 to 10 % over the week. India VIX, the stock market crash fear indicator, increased by 20 % which indicates extreme volatility.

War Impact on Stock Market: Learning from West Asia Conflicts

The effect of war on stock market has always been clear in the war impact on stock market. The conflict between the US and Iran impacts India's energy security. Any conflict in West Asia has historically resulted in emerging markets crashing and a surge in oil prices. The 2022 Russia-Ukraine conflict, the 1990 Gulf War, and the 1973 Yom Kippur War are all examples. The war's impact on the stock market is due to three reasons:

1. Supply risk: Some analysts think the crude oil price could reach $150, given the blockade of the Strait of Hormuz.

2. Currency trouble: The depreciation of the rupee made the imports of oil (priced in dollars) expensive.

3. Global spread: The US and European markets also sold out. This made FIIs leave India.

The Sensex chart is testing the support lines like the ones during the oil price spike in 2018 or the COVID crash in 2020. There is much more to go than just the support lines; the conflict extends, at least to 70,000 - 72,000 on Sensex.

Still, there is positive news. The foreign exchange reserves in India are healthy. The Strategic Petroleum Reserves of India are in a healthy range. The government has started finding ways to get oil from Russia, the USA, and Saudi Arabia.

Understanding History and Analyzing the Sensex Chart

Though the current fall is painful, the Sensex chart shows that it is not the first time. The index has overcome the shocks and problems of oil in 2008, 2014, and 2022. When problems are over, it has always recovered strongly.

The Indian stock market crash of 2022 mirrors the crash of 2022 in that when the crude price went over $120, the stock market went down around 10%, but in a few months, the stock market was able to get back to a 25% growth. This crash reflects the quick global adjustment of supply chains after the spike in oil prices. 

This is due to the fact that the economy is now much stronger and more secure due to the upcoming projected GDP growth of 6.5% - 7% and the stronger corporate balance sheets. On top of this, the digital economy is providing a new boost to the economy after the negative impact of the digital economy on the GDP due to the pandemic.

Technical analysts say that the Sensex chart will have a relief rally due to oil prices coming down to about $95, but due to the impact of the crazy war on the economy, the stock market will remain unstable for the time being.

What Investors Should Do Amid This Volatility

Fear from the media will lead to panic selling, which is the worst action to take due to the extreme fear in the market. If the market history is used to predict the market, the market will hit its lowest point and begin to recover. Here are the actions that can be used to create a recovery for the fear in the market to bottom out.

• Review asset allocation: Decrease the asset allocation to stocks in the oil market and increase the asset allocation to stocks in the IT, Pharmaceutical and Manufacturing Consumer app.
• SIP discipline: Keep up the systematic investments and wait for the rupee-cost averaging to take action; this will result in a much more favorable bet for you than for everyone else at the market crash.
• Focus on quality: Buy out the stronger, more stable, predictable, less-volatile stocks that other traders are waiting for. This is when the panic selling will lead to the stocks losing value. This will also be the time when the Sensex market will stabilize.
• Hedge with gold: The increase seen in gold prices on the market will lead to more confident portfolios.
• Stay informed: De-escalation of the prices of crude oil will lead to a gold market crash. This will create a more favorable market for everyone else in the market. This can be avoided by directly monitoring the prices of oil in West Asia on a daily basis.

Investors with horizons longer than five years have very little to worry about. Despite the Sensex market crashing multiple times, it has provided a 12-15% CAGR over the decades.

Conclusion

India's stock market slump, brought on by this oil shock, can continue till the effects of the conflict on the stock market lessen. The Sensex could swiftly recover 78,000 if the price of crude oil drops below $90 and FII inflows start up again. The government's fiscal discipline and the RBI's inflation control will also be crucial.

The Sensex chart is still in correction mode for the time being. However, corrections lead to opportunity. If India's growth story continues, the same Sensex market that lost ₹19 lakh crore this week might add many more in the years to come.

Although the oil shock caused the Sensex to plummet, India's structural bull case remains intact. Remain composed, continue to invest, and keep an eye on the price of crude oil and news about geopolitics.

(Source: NDTV)

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.