Market spooked by tensions in Yemen

Sensex drops 654 pts; oil prices up 4%; gold sees safe-haven buying

On Thursday, the benchmark Sensex and Nifty posted their second-worst fall this year, owing to risk-aversion among investors after Saudi Arabia launched air strikes on Yemen. The attack had a ripple effect across financial markets, with oil prices rising as much as six per cent and gold and other assets such as US Treasury, the franc and the yen seeing safe-haven buying.

Falling for a seventh consecutive session, the 30-share Sensex lost 654.25 points, or 2.33 per cent, at 27,457.58, the lowest since January 14. In intra-day trade, the index was down as much as 727 points, amid high volatility due to expiry of monthly derivatives contracts. The broader Nifty lost 188.65 points, or 2.21 per cent, to close at 8,342.15. The benchmark indices have seen almost all their gains this year being wiped out after Thursday’s fall.

Investor wealth of BSE-listed-firms on Thursday slipped below the Rs 100-lakh-crore mark. At close of trade, total market capitalisation stood at Rs 99,66,783 crore.

Oil prices rose, as strikes by a Saudi Arabia-led coalition against anti-government Houthi fighters in Yemen (believed to be backed by Iran) raised concern of disruption in supplies. Though Yemen contributes less than 0.2 per cent of the global oil output, it is located at the hub of the global energy trade. Oil prices rose for a fifth day, with the commodity being traded at $51 a barrel, four per cent higher, at the close of Indian stock markets.

Brent crude oil and WTI hit intra-day highs of $59.72 a barrel and $52 a barrel, respectively, before coming off their peaks.

In London, gold prices hit a month’s high and were trading at $1,212/oz, up $17/oz from its previous close. Silver was up 1.63 per cent to $17.22/an oz. Standard gold at Zaveri Bazaar here rose 2.5 per cent to Rs 27,260/10g, following global trends.

The rupee lost 33 paise to close at a near-two week low of 62.67/dollar, amid selling by foreign investors. According to provisional data, foreign investors net-sold shares worth Rs 521 crore, while domestic investors were buyers to the tune of Rs 687 crore on Thursday.

“Global events are the most difficult to predict…Indian markets always remain vulnerable to negative global news flows,” said ICICI Prudential AMC’s chief investment officer, S Naren, who oversees assets worth about Rs 1.3 lakh crore.

The risk aversion saw most Asian markets ending with losses and European markets opening about a per cent lower, while US index futures signalled a weak opening.

“Stocks fell due to the Yemen crisis. Lack of participation from domestic investors added to the fall. The market is seeing a liquidity issue due to advance tax payments and adjustments related to the closing of the financial year,” said Sudip Bandyopadhyay, president, Destimoney Securities.

Almost all sectoral indices of the BSE ended with losses. Among Sensex components, HDFC fell the most (five per cent). While Wipro fell four per cent, Infosys and State Bank of India declined three per cent each.

In the absence of immediate triggers and subdued earnings expectations for the March quarter, traders are uncertain about Indian markets. “An improvement in earnings isn’t expected for at least another two quarters,” said Naren.

“There are few big triggers until mid-April, when companies start reporting their fourth quarter numbers. However, the monsoon forecast by the met department and the Reserve Bank of India’s credit policy early next month have the potential to change the course of the market,” said Bandyopadhyay.

Lack of earnings support has seen Indian markets fall 7.5 per cent from their all-time high at the end of January. Market players said the correction could sharpen if foreign investors continued to sell due to global tensions. So far this year, foreign investors have invested about $5.5 billion into Indian stocks.