Indian equity benchmarks steady, rise in financials counters Mideast flare-up

Indian share benchmarks were largely unchanged at close on Wednesday, with gains in heavyweight financials offsetting a broader selloff triggered by a renewed escalation of the Middle East conflict.

Iran launched missile and drone attacks on U.S. military bases in Jordan, Kuwait and Bahrain, after American strikes on Iranian targets near the Strait of Hormuz, in one of the biggest outbreaks of hostilities since the ceasefire in April.

The war, in its fourth month, has pummelled emerging market assets, forcing governments across Asia to take measures to curb the impact of the energy shock on growth and inflation.

India’s benchmark Nifty 50 fell 0.12% to end at 23,214.95, while the Sensex gained 0.09% to 73,983.18.

The indexes have fallen 7.8% and 9%, respectively, since the war broke out at the end of February, with about $29 billion in foreign outflows.

On Wednesday, 13 of the 16 major sectors declined. However, financials and private banks rose 0.2% and 0.7%, respectively, extending the previous session’s rise.

Lenders’ shares have been boosted by a concessional forex swap facility that would lower the cost of mobilizing foreign-currency deposits, according to G Chokkalingam, founder and head of research at Equinomics Research.

However, the benchmarks may struggle to rise much unless foreign outflows reverse and pressure from oil, fertiliser and gold imports eases, which are all contingent on the resolution of the war, Chokkalingam said.

Inflows into equity mutual funds fell to their lowest in about a year in May, while gold ETFs saw their first outflows in a year, suggesting weak returns and heightened uncertainty are starting to hurt domestic flows — a key support for Indian equities over the past four years.

On Wednesday, metal shares lost 1.7% on renewed Mideast hostilities and rising expectations of a Federal Reserve rate hike by year-end.

India’s broader small-caps and mid-caps fell 1.3% and 1.5%, respectively.