Nifty 50 Index forms risky pattern as oil prices jump, bank crisis deepens

The Nifty 50 Index remained in a correction on Monday as the risks to the Indian economy continued. It dropped to INR 22,678, down by nearly 14% from its highest point this year, and technicals suggest that it has more downside in the near term as the Iran war and bank crisis continue.

Indian stocks on edge as US-Iran continues

The Nifty 50 Index has dropped sharply in the past few weeks as investors focused on the ongoing US-Iran war, which has pushed energy prices higher and caused shortages in India, a country that imports most of its energy from the Middle East.

The West Texas Intermediate (WTI) jumped to $112 on Monday at $112, while Brent was trading at $110. This rally continued after President Donald Trump threatened to bomb Iran's bridges and power plants on Tuesday if no deal is reached.

Iran has threatened to intensify its attacks against its neighboring countries, and continue shutting down the Strait of Hormuz. Such an escalation would lead to higher crude oil prices, with a Kalshi poll estimating that it will jump to $150 this year.

Soaring energy prices are highly bearish for India, a country whose inflation started rising before the war started. Data shows the country’s consumer price index rose to 3.21% in February from 2.74% in the previous month.

It has been rising after bottoming at 0.25% in October last year, and analysts expect the upward trajectory to continue this year. 

As a result, the Reserve Bank of India (RBI) may start hiking interest rates, making a sharp turn around after last year's cuts, which brought the benchmark rate from 6.5% in January to 5.25%.

The rising odds of a hawkish RBI explain why Indian bond yields have soared in the past few weeks. The ten-year rose to 7.12%, its highest point since May 2024. It has jumped sharply from a low of 6.129% in April last year.

Indian banks at risk 

The Nifty 50 Index is also falling as concerned about Indian banks continue, with analysts at Jefferies warning that the trend will continue.

In a report, Jefferies warned that banks may face up to 50 billion rupees ($537 million) in losses from the unwinding of currency trades because of the RBI directives.

Recent data showed that global investors dumped a record 327 billion rupees from India banks, with the Nifty Bank Index shedding over $95 billion in value since the first week of March.

In a recent note, analysts at Fitch warned that banks could see their net interest margin drop 20 to 3o basis points in the year ending in March next year. The weakness in Indian banks is notable as they account for a third of the Nifty 50 Index.

Still, on the positive side, banks are becoming highly undervalued, while analysts see possible tailwinds as India is one of the fastest-growing economies globally.

Some Indian bank stocks are some of the top laggards in the index this year. HDFC Bank stock dropped by 24% this year, a situation that escalated after the recent Chairman's resignation. Kotak Mahindra stock has dropped by 20%, while ICICI is down by 10%.

Nifty 50 Index technical analysis 

Nifty 50 Index chart | Source: TradingView 

The three-day chart shows that the Nifty 50 Index formed a double-top pattern at INR 26,275 and a neckline at INR 21,750, its lowest level in April 7 last year. A double-top is one of the riskiest chart patterns in technical analysis.

The 50-day and 100-day Exponential Moving Averages (EMA) have continued falling and are about to cross each other. Also, the Average Directional Index (ADX) has continued rising, a sign that the downtrend is gaining momentum.

Therefore, the index will likely continue falling in the near term, with the next key target to watch being INR 21,750. A drop below that level will point to more downside, potentially to the psychological level at INR 20,000.