Indian stock markets witness erosion of wealth as investors resort to heavy selling amid geopolitical tensions

On October 25, 50 shares listed on the NSE Nifty experienced a decline of 159.60 points or 0.83 percent, closing at 19,122.15.

In parallel, the BSE Sensex, considered the flagship index, recorded a significant drop of 0.81 percent or 522.82 points, concluding at 64,049.06.

A concerning trend for investors has emerged, as not only the headline indices but also the broader market, displayed vulnerability in this recent downturn.

Both the Nifty Smallcap and Nifty Midcap indices registered approximately a one percent decline on Wednesday.

Escalating Middle East conflict have sparked investor concerns. Fear of broader involvement and impact on oil-producing nations could raise oil prices, affecting industries and living costs, adding to existing economic challenges and forcing investors are pre-emptively adjust positions, according to the report.

Any escalation of the Israel-Hamas conflict will potentially result in the spiralling of crude oil prices which is currently close to $88 a barrel. This will push the prices of raw materials for several industries, apart from a surge in living costs, posing challenges for the economy already grappling with inflationary headwinds.

As the yield on 10-year US bonds exceeds 5%, it's becoming an attractive option for investors seeking safety. This may lead to an outflow from riskier markets like India, where equities face geopolitical and currency risks. This shift is reflected in FPIs withdrawing significant amounts from Indian equities recently, the report said.

Both Indian and US equities are among the costliest stocks globally, making them prone to abrupt corrections. This trend is more pronounced in the broader market, resulting in more substantial selling pressure, particularly in small and midcap segments.

India Inc's second-quarter earnings have yielded a mixed outcome, with some positive surprises and a number of disappointments. This lackluster performance from key companies has cast a pall over the overall market sentiment. Banks are grappling with margin contractions, and major IT firms are contending with a slowdown.

Furthermore, the sentiment on Dalal Street has been influenced by the global market's weakness. On October 25, all European markets opened lower. While Asian indices closed with a mixed outcome, Singapore and South Korea ended in the red, while others saw a modest recovery, the report said.