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The Indian stock market witnessed a tumultuous week, registering its worst performance in two years. The Sensex and Nifty, the two major stock indices, plummeted by over 4% each, marking their steepest weekly decline since June 2022. This downturn can be attributed to a confluence of factors, primarily driven by escalating tensions in the Middle East.
The geopolitical instability in the region has sparked concerns about potential disruptions to global crude oil supplies. As a major importer of oil, India is particularly vulnerable to price fluctuations and supply shortages. The escalating conflict has led to a surge in oil prices, impacting various sectors of the Indian economy and putting pressure on corporate earnings.
Furthermore, foreign institutional investors (FIIs) have been pulling out money from the Indian market, opting for cheaper markets like China. This outflow of foreign capital has further exacerbated the downward pressure on the stock market. FIIs are seeking higher returns in markets with more attractive valuations and potential for growth. The recent depreciation of the Indian rupee against the US dollar has also contributed to the outflow of foreign capital.
The Indian stock market's performance is closely tied to global economic conditions and geopolitical developments. The current situation in the Middle East has exposed the Indian market's vulnerability to external shocks. Investors are closely monitoring the situation and remain cautious about the short-term outlook. The extent of the market's recovery will depend on how the Middle East crisis unfolds and the impact it has on oil prices and investor sentiment.