The Indian stock market got a jolt on Thursday. The benchmark S&P BSE Sensex dropped 2.1%. This was its biggest fall in about two months, and wiped out roughly ₹10 trillion of investor wealth in a single swoop. What darkened the mood were war clouds in West Asia, which thickened after Iran’s air strikes on Israel.
The risk of a wider regional conflagration has gone up sharply. Should a retaliatory attack by Israel hit Iran’s oil installations, crude prices could rise and hurt India’s economy by inflating its import bill. A drastic price rise could unsettle today’s benign inflation outlook and weaken the rupee. Stock market jitters have other causes too, of course.
Globally, China’s equity market appears to have been re-rated after its central bank went in for a big stimulus, and it is again attracting flows from investors who till recently saw India’s as the only big Asian economy worth betting on. Markets across Asia have been shaken by those two factors.
That said, Indian indices are still up 25% in the past 12 months. So, long-invested investors are faring fine. A correction in share prices could get valuations back to reasonable levels.Unless the West Asian war worsens, the stock market may recover.