2. Crude Oil Spikes; US Rejects Iran's Peace Proposal
Crude oil prices jumped sharply today after US President Donald Trump largely rejected Iran's response to a peace proposal to end the ongoing Middle East war. In a post on Truth Social, Trump expressed dissatisfaction with Iran’s response delivered through diplomatic channels, calling it “TOTALLY UNACCEPTABLE.” Brent crude was trading at $105 per barrel, up over 4% on the day, while WTI crude also surged past $100. With the war in the region showing no clear signs of resolution, concerns over supply disruptions through the Strait of Hormuz remain alive.
India needs around 85% to 88% of its crude oil demand from imports, and a significant part of those imports comes via the Strait of Hormuz, which means any kind of rise in tensions will have a clear macro impact on India. An increase in crude prices translates into increased imports, an increase in current account deficits, and inflationary pressures, all of which the market has already priced in.
3. Rupee Under Pressure
India’s rupee also experienced a depreciation against the US dollar, which stood at ₹95.18 per US dollar as of May 11, 2026. India’s rupee had been experiencing a continuous depreciation in CY2026 because of high oil prices, resulting in higher demand for dollars for purchasing oil and capital flight, hence causing a decrease in the supply of dollars.
A depreciation in the rupee increases the cost of imported products such as crude oil, thereby causing inflation directly. Moreover, a depreciation in the rupee makes the value of investments by FIIs fall, forcing them to sell off their assets.
4. FII Selling Continues Without A Break
FIIs have consistently remained net sellers of Indian equities up until 2026, and this trend persisted even during May as well. Around ₹1.2 lakh crore of Indian equity capital witnessed withdrawal by FIIs in March 2026 itself, and there has been no significant reversal of this outflow so far.
As per The Hindu Business Line, FPI ownership of Indian equities now stands at 14.7%; its lowest since June 2012, down from 19.9% a decade ago. The cumulative withdrawal of FIIs from Indian capital markets stood at over ₹2 lakh crore for the first four months of 2026, one of the sharpest and prolonged instances in recent years.
5. India VIX Spikes: Fear Gauge Signals More Volatility Ahead
India VIX, popularly referred to as the “fear gauge” of the market, rose by 9% to about 18.2. Whenever there is a sharp rise in VIX, it indicates that there is expected volatility ahead, and investors tend to adopt a cautious approach by exiting their positions.
Given the current high VIX readings, volatility within the day is anticipated to stay high, and for any rally to be sustainable, a decline in VIX levels would be essential.
6. Broader Macro Headwinds: Current Account, Inflation, and Rate Outlook
Apart from these direct catalysts, the economy is also facing a broader macroeconomic environment that continues to worsen. High oil prices have increased India’s current account deficit as its import bills soar. Estimates from the Reserve Bank of India (RBI) indicate that a 10% increase in the price of oil would lead to an increase in India’s CPI inflation rate of about 30 basis points.
With inflation already elevated and the RBI navigating a difficult path between supporting growth and keeping prices in check, the room for any meaningful policy support to the markets remains limited. The prospect of a domestic fuel price hike, which Modi's advisory has now made more likely, adds another layer of inflationary pressure that the market has to price in today.
