India's benchmark equity index Sensex sank 2.3% yesterday, worst performer amongst Asian counterparts. This takes the index down around 7% from the recent record highs. The bond markets meanwhile are in a consolidative state amid lack of fresh triggers to break on either side.

Apart from the catch-down with the soft underlying growth momentum/ dis¬mal corporate earnings, the recent rebound in global oil prices is to blame for this profit-taking bout in the Indian equity markets. Geopolitical tensions have pushed Brent prices (in Rs terms) up about 20% from mid-Jan lows, but are still down by about 45% since Jun14. This will limit any negative fallout on India's fundamentals in the immediate-term. Therefore even as the durability of the recent squeeze in oil prices is in doubt, it does highlight the hand of external factors in India's improving macro variables, said DBS Bank in its report.

One factor that however warrants attention is inflationary expectations. 'We had noted in the past that a sharp fall in oil prices was behind the correction in India’s inflationary expectations towards late-last year. This might reverse out if the turnaround in crude prices sustains, which in turn affirms our view that the room for further rate cuts is fast narrowing,' it added.
 
In the meantime, the bearish mood in the US markets are also spilling over as US rate hike bets fade in and out. This is even more relevant as Indian markets have been amongst the biggest beneficiaries of global accommodative policies. On the technical end, position-adjustments ahead of the upcoming holiday-shortened week and end-fiscal year on March 31 have also kept bulls in check, it opined.