Indian benchmarks drop 1% as investors fret over heightened Mideast tensions

By Vivek Kumar M

(Reuters) -India's equity benchmarks fell 1% on Monday after U.S. attacks on Iranian nuclear sites fuelled fears of a further escalation in Middle East tensions and pushed oil prices to a five-month high.

The Nifty 50 and the BSE Sensex were down 0.9% each at 24,890.03 points and 81,659.09 points, respectively, as of 10:37 a.m. IST.

All 13 major sectors traded lower. The broader mid-caps fell 0.2% and small-caps were flat.

The U.S. bombed Iranian nuclear sites over the weekend, joining Israel in the biggest Western military action against the Islamic Republic since the 1979 revolution.

Most Asian stocks fell on Monday, with the MSCI Asia ex Japan down more than 1%. Oil prices briefly hit a five-month high, while the focus remains on a potential military response from Iran. [MKTS/GLOB]

"Worries over potential supply disruptions from Strait of Hormuz is driving the sentiment," said Vinit Bolinjkar, head of research at Ventura Securities.

About a fifth of the world's total oil consumption passes through the strait, which lies between Oman and Iran.

Higher crude oil prices are a negative for India, which depends heavily on imports for its energy requirements, as they could stoke inflation and widen the fiscal deficit.

Still, UBS said it does not see a prolonged disruption to oil supplies.

"We believe that near-term downside in stocks could represent an opportunity for investors who are underallocated to equities to build positions," the brokerage said.

Meanwhile, IT stocks shed 1.8% after Accenture posted a third consecutive quarter of yearly decline in outsourcing orders as a cutback in U.S. government spending and tariff uncertainty pressured economic growth.

Indian IT firms get a significant chunk of their revenue from the U.S.

In contrast, small finance banks rose after the central bank reduced the mandated portion of lending to priority sectors to 60% from 75%.

(Reporting by Vivek Kumar M; Editing by Sonia Cheema and Mrigank Dhaniwala)