Oil Price Surge Triggers Market Sell-Off Amid Rate Hike Fears

Indian stocks experienced their fifth consecutive weekly decline due to concerns over crude oil prices and interest rate hikes. The Sensex fell 2.3% over the week, while the Nifty 50 dropped 2.1%, marking their steepest weekly drop since July 24. Brent crude exceeded $108 per barrel in Asian trade, nearing $110, following escalating US-Iran tensions and attacks on Saudi energy infrastructure.

The surge in oil prices pushed the 10-year US Treasury yield to 4.95-4.97%, its highest level since October 2023 and close to the critical 5% threshold. This has set the stage for a potential rate hike at the upcoming US Fed meeting, with markets now pricing in a ~71% probability of a 25-basis-point Fed hike next week.

Rate-sensitive sectors such as real estate emerged as underperformers, with the BSE Realty index falling 6.4% this week. The IT sector also declined amid concerns over AI disruption, with the BSE IT index dropping 5.3%. Foreign portfolio investors have snapped their recent buying streak, net selling Rs.13,138 crore in September so far.

The market is expected to navigate geopolitical instability, elevated US Treasury yields, and shifting sentiment around the AI trade. Rate decisions from the US Fed and the Bank of Japan next week will determine near-term market direction.