Highlights: Crude jitters on D’Street – Sensex ends at 10-month lows, Nifty manages to close above 24,000 after gap-down

In an otherwise falling market, IT stocks are seeing some select buying. Top IT sector gainers include HCLTech and Wipro. The Nifty IT Index has also seen limited fall in comparison with a few other big sectoral losers. It is down 0.2% compared to 3% plus fall by Nifty Bank Index.

Anindya Banerjee, Head of Commodity and Currency Research, Kotak Securities pointed out that, “This is not just an oil price shock; it is also an oil quantity shock. Crude prices have surged nearly 65% in less than seven trading sessions, which is highly unusual. The last time we saw a comparable situation was during the 1970s oil crises, when disruptions in physical supply triggered a structural surge in prices."

According to him, "What makes the current situation different from recent oil rallies is that the disruption is not merely perceived—it is linked to the choking of the Strait of Hormuz, a critical transit point through which roughly 20% of global oil supplies move. When such a major artery of the global energy system is disrupted, the market is not only repricing risk but also adjusting to the possibility of a real supply constraint."

Going forward, there are two broad paths for the oil market. He highlighted that "If the Strait of Hormuz becomes operational again and flows normalize, prices could correct sharply as the supply shock fades. However, if the disruption persists for several weeks, oil prices could rise further until they begin to destroy demand by inflicting serious damage on the global economy through inflation, tighter financial conditions, and disruptions to trade and industrial activity."

He advised, "Investors should also monitor the escalation ladder in the West Asian conflict. The first stage is the current disruption in transit through the Strait of Hormuz. The second, more serious risk would be direct attacks on oil and gas infrastructure across the region. The third and least probable but most severe scenario would involve damage to critical water infrastructure, which would have a major humanitarian dimension."

In terms of price levels, "$125 per barrel is the immediate resistance zone. If prices break above that decisively, the market could begin targeting the 2008 highs near $145–$150. On the downside, $90 has now emerged as a critical support level; a move below that would likely signal meaningful de-escalation," he added.

Given the sharp spike in crude and expectation of a sharp slide in morning trade, the street expects Nifty to slip to its support zone. Shrikant Chouhan, Head Equity Research, Kotak Securities pointed out that, "On the downside, 24,300 on Nifty and 78,800 on Sensex would act as an immediate support zone for traders. Below those levels, the market could retest levels of 24,000 on Nifty and 77,900 levels on the Sensex. Further downside may also continue, which could drag Nifty to 23,800 and then23,500."

On the flip side, he added that "24,500 on the Nifty and the 79,500 would be the immediate resistance zone for traders. If the market succeeds in trading above 24,500 on Nifty and 79,500 on Sensex, then the pullback move could continue till 24,800-24,850 on Nifty and 80,400-80,600 on Sensex."

According to him, "the market is trading well below short-term and medium-term averages and is also forming a lower top on daily charts. In addition, a bearish candle on weekly charts also indicating further weakness from the current levels. We are of the view that the short-term market texture is volatile; hence, level-based trading would be an ideal strategy for traders."

Crude prices above $110/bbl have far-reaching impact on a host of stocks. The Oil Marketing Companies will bear a significant brunt of this sharp spike in crude prices -

According to the latest Nomura report, "Due to the sharp rise in crude oil prices as well as diesel cracks, fuel marketing margins of

oil marketing companies (OMCs) have been significantly impacted and are at their lowest levels since July 2022. We estimate current blended marketing margins at a loss of Rs 19.8/litre."

They estimate "negative integrated margins for HPCL due to

the higher share of fuel marketing volumes where margins are very weak." Nomura however, has a Buy rating on HPCL.

Speaking on the sharp spike in oil prices, market veteran Ajay Bagga pointed out that "oil prices are rising 18-20% this morning in Asia, transmitting a massive risk-off to markets as fear takes centre stage. Oil prices are the basis of pricing in the economy. A 20% global shortage of oil is now getting reflected in prices which may go up further to the $150/bbl level on Brent. This is the Fear Premium as at these levels there will be demand destruction across the global economy."

Bagga poiinted out how oil prices are strongly correlated to food prices and bring in a cost plus inflation into the entire economy. Monetary policy tightening may be forced onto central banks if this inflation stays elevated for a longer time. "Overall these levels of inflation point to an incipient global recession on the back of aggregate demand turning negative as marginal consumers stop discretionary consumption and cut back on non-discretionary consumption. This 20% oil supply cut and the 70% rise in oil price is a big drag on the global economy. Markets as forward discounting mechanisms are reflecting the economic impact that is going to be evident over the next few months," he added.

According to Bagga, the big concern now is that "huge margin calls will get triggered in the more leveraged parts of markets. This will translate into selling in all liquid parts of the markets. Asian markets are showing deep cuts, with Korea, a leveraged market, down more than 7% , Japan down 6%; and most global futures down 2%. Gold and silver, which should be rallying as safe-haven assets, are also down 2% as liquidity needs are being met by selling whatever holdings can be sold in this market."

One of the key reasons why global equity markets are under severe pressure is the big spike in crude prices. Crude oil has now spiked above the $110 per barrel mark. This represents 25% surge in oil prices. This is the highest spike in crude prices since July 2022.