Market could continue to slip on oil fall

The stock market might continue to remain under pressure due to weak global investor sentiment, trigged by a sharp fall in crude oil prices. Disappointing Index of Industrial Production (IIP) data, released after market hours on Friday, is likely to add to selling pressure.

Last week, the benchmark Sensex posted its worst weekly decline in nearly three years, led by a drop in the shares of oil companies Reliance Industries and Oil and Natural Gas of India. The benchmark BSE Sensex ended at 27,350.68, while the National Stock Exchange's Nifty closed at 8,224.1, nearly five per cent off from their peak level seen during November-end.

 

The IIP contracted by 4.2 per cent in October, for the first time in seven months, data released on Friday showed.

Meanwhile, consumer inflation eased to 4.38 per cent in November, from 5.52 per cent a month ago.

While the fall in the inflation number is likely to cement hopes of an interest rate cut, an unexpected drop in industrial production could weigh on markets, said experts.

Piyush Garg, chief investment officer, ICICI Securities, said the downward trend seen in the market last week will continue after the disappointing October IIP data.

"Already, there is selling pressure in the market and the IIP figure will only add to that. There is no doubt that the manufacturing activity is yet to pick up. Another three to five per cent correction from current levels cannot be ruled out," said Garg.

Garg and other analysts, however, advised not to read too much in the IIP figure, especially as there were too many holidays in October. Many, however, believe the market trajectory will be determined by oil prices and the risk appetite of global investors, weak in the past week.

Brent crude prices have declined 45 per cent since June to below $62 a barrel. Oil is expected to decline further, which will have ramifications on the world economic growth and the financial markets, say experts.

"The decline is due to weak world demand. Nifty and oil have a positive correlation," said Neelkanth Mishra, managing director-equity research, Credit Suisse.

Mishra said the drop in oil prices is also likely to hit foreign flows into the country, as it will hurt the savings of producing countries, big exporters of capital.

On Friday, foreign institutional investors (FIIs) sold shares worth Rs 865 crore, provisional data from stock exchanges showed. Market players say FII selling might continue if oil prices remain under pressure.

According to a technical analysis by HDFC Securities, if the Nifty manages to sustain above 8,180, it could see a bounce back to 8,350.