Indian stocks, the rupee and government bonds rallied on Monday, 27 July, after a pause in attacks between the US and Iran sent oil prices sharply lower and eased concerns over inflation and the country’s import bill.

The Nifty 50 rose 0.96% to close at 23,995.95, while the BSE Sensex gained 1.02% to 76,835.78. The advance ended five consecutive sessions of losses during which the benchmarks had fallen 2.3% and 2.7%, respectively.

Brent crude fell about 9.3% to around $88 a barrel during Indian market hours, reversing much of last week’s rise above $100. Iran said it would halt attacks as long as the US did the same, reducing immediate fears of disruption to oil supplies from the Gulf.

The drop mattered particularly for India, which imports nearly 90% of its crude requirements.

Higher oil prices tend to widen the trade deficit, push up inflation and increase demand for dollars from importers. Those pressures had weighed on stocks, the rupee and bonds throughout the previous week.

Monday’s equity gains were broad. All 16 major sectoral indices advanced, while the Nifty Smallcap 100 and Midcap 100 rose 1.3% and 1.1%, respectively.

Information technology stocks led the rise, with the sectoral index gaining 2.3%. Infosys Ltd climbed 3.7% after Jefferies upgraded the sector to neutral from underweight and added the company to its model portfolio.

IDFC First Bank Ltd rose 5.1% and AU Small Finance Bank Ltd gained 4.8% after reporting quarterly results. State-run fuel retailers Bharat Petroleum, Hindustan Petroleum and Indian Oil Ltd advanced between 1.9% and 3.8%.

Companies that use oil or oil-derived materials also benefited. IndiGo, Asian Paints, Kansai Nerolac, JK Tyre and CEAT rose between 1.2% and 5.6%.

RBI adds to rupee gains

The rupee recorded its strongest session in more than six weeks as falling oil prices combined with likely intervention by the Reserve Bank of India (RBI).

The local currency opened at 96.1475 against the dollar and strengthened to an intraday high of 95.7950, compared with Friday’s close of 96.5625. The currency ended about 0.7% higher, its biggest one-day gain since 12 June.

The RBI began selling dollars when the rupee was trading near 96.15, Bloomberg reported, citing traders who described the intervention as substantial and said it added force to a rally that had already begun as oil and the dollar index declined.

Once the dollar slipped below the 96.14 to 96.16 range, traders unwound positions betting against the rupee, accelerating the move toward 95.80.

The RBI was active in the spot and non-deliverable forward markets and also carried out buy-sell swaps, according to traders cited by Reuters. Estimates of its intervention ranged from about $1.5 billion to $3 billion.

The central bank has recently introduced measures to attract more foreign currency into the banking system. Those schemes have brought in nearly $32 billion, RBI governor Sanjay Malhotra said in an interview with The Hindu Business Line published on Monday.

Government bonds rose alongside the currency. The yield on the benchmark 10-year security ended near 6.78%, down about five basis points from 6.8253% on Friday. Bond prices rise when yields fall. One basis point is one-hundredth of a percentage point.

Lower oil prices reduced expectations of imported inflation and eased fears that the RBI could be forced to tighten monetary policy. The respite followed two weeks of losses in the bond market as rising crude prices had pushed the benchmark yield higher.

The improvement remains vulnerable to another turn in the Middle East conflict. Tanker movement through the Strait of Hormuz has yet to return to normal, while Iran-aligned Houthi forces have continued attacking Saudi energy infrastructure near the Red Sea.

Investors will also watch the US Federal Reserve’s policy decision on Wednesday. The central bank is expected to leave rates unchanged, though markets have increased bets on a possible increase later in the year as oil-driven inflation risks persist.