Sensex falls 642 pts, Nifty ends at 10,818 on oil crisis and global tension

Rupee weakens against dollar; 10-yr bond yield inches up

The markets fell for a second day in a row on Tuesday on fears that oil prices could rise further due to escalating geopolitical tensions and supply disruption following Saturday’s drone attacks on two major oil facilities in Saudi Arabia.

The benchmark Sensex dropped as much as 700 points in intra-day trade before settling 642 points, or 1.7 per cent, lower at 36,481, while the Nifty50 index slipped 186 points, or 1.7 per cent, to end at 10,818. 

The rupee weakened for a second day against the dollar, dropping to a low of 71.98 before recovering to end the session at 71.79. The yield on the 10-year benchmark government bond also inched up.

Experts said investors were fearing the oil price surge would further dampen economic prospects for India, which relies on imports for over 70 per cent of its oil needs.

Brent crude oil prices, after surging from $61 a barrel to over $70 a barrel a day earlier, retreated on Tuesday. However, the situation remained uncertain, with analysts forecasting the price would surge past the three-digit mark if the attack on Saudi escalated into a full-blown crisis.

“If there is strong retaliation or more drone attacks, the situation could spiral out of control. In the worst case, it could escalate into a full-blown crisis in west Asia and lead to larger and more permanent oil supply declines. In this situation, oil prices could surge above $100 a barrel,” said Rob Subbaraman, head of global macro research at Nomura, adding that India was among the economies that could suffer the most from an oil price surge. A sharp rise in oil prices may weaken India’s economic growth, widen the current account and fiscal deficit, and fan inflation.

“The sudden spike in oil prices on account of drone attacks on Saudi Arabia establishments has disrupted sentiment as it tends to impact the current account and fiscal deficit adversely, thereby deterring the path of recovery for an economy that is already immersed in a slowdown,” Nischal Maheshwari, CEO–institutional equities, Centrum Broking, said.

Financial stocks led the declines as investors feared the oil situation could put an end to the interest rate easing cycle by the Reserve Bank of India (RBI). HDFC, HDFC Bank, ICICI Bank, and Axis Bank alone contributed 281 points to Sensex’s decline.  

The fall in the market also comes a day after RBI Governor Shaktikanta Das said easing of growth in the first quarter of the fiscal to 5 per cent came as a surprise.

Currency dealers said the RBI intervened in the currency market to ensure that the rupee didn’t cross the 72 a dollar mark. Besides oil prices, the weakness in the Chinese currency is acting as a headwind for the rupee.

“The primary concern continues to be the Chinese yuan devaluation. Weak equities on oil concerns are damaging the sentiment further,” said Ritesh Bhansali, vice president at Mecklai Financial Services.

Foreign portfolio investors (FPIs) sold shares worth more Rs 808 crore, while their domestic counterparts remained only marginal buyers on Tuesday. FPIs’ selling rally has neared the $5 billion mark for the ongoing quarter. This is one of the highest pull-out by overseas investors for a three-month period.

After the latest fall in the market, the year-to-date returns for the benchmark Nifty once again slipped into negative territory, while that of the Sensex were marginally positive.

All the 19 sectoral indices compiled by the BSE ended with losses. The BSE Auto index fell the most at nearly 4 per cent. The index is down 24 per cent this year due to a sharp fall in demand amid sluggish economic growth. 

From their all-time highs in early June, the Nifty and the Sensex have corrected 9.4 per cent and 10.5 per cent, respectively. The markets have been volatile since the beginning of the year due to a bunch of issues, including liquidity crunch at NBFCs, rising instances of corporate default and sluggish earnings growth. Globally, trade tensions between the US and China and fears of recession have added to investors woes. 

The fall in the market also comes a day after RBI Governor Shaktikanta Das said easing of growth in the first quarter of the fiscal to 5 per cent came as a surprise.

Currency dealers said the RBI intervened in the currency market to ensure that the rupee didn’t cross the 72 a dollar mark. Besides oil prices, the weakness in the Chinese currency is acting as a headwind for the rupee.

“The primary concern continues to be the Chinese yuan devaluation. Weak equities on oil concerns are damaging the sentiment further,” said Ritesh Bhansali, vice president at Mecklai Financial Services.

Foreign portfolio investors (FPIs) sold shares worth more Rs 808 crore, while their domestic counterparts remained only marginal buyers on Tuesday. FPIs’ selling rally has neared the $5 billion mark for the ongoing quarter. This is one of the highest pull-out by overseas investors for a three-month period.

After the latest fall in the market, the year-to-date returns for the benchmark Nifty once again slipped into negative territory, while that of the Sensex were marginally positive.

All the 19 sectoral indices compiled by the BSE ended with losses. The BSE Auto index fell the most at nearly 4 per cent. The index is down 24 per cent this year due to a sharp fall in demand amid sluggish economic growth. 

From their all-time highs in early June, the Nifty and the Sensex have corrected 9.4 per cent and 10.5 per cent, respectively. The markets have been volatile since the beginning of the year due to a bunch of issues, including liquidity crunch at NBFCs, rising instances of corporate default and sluggish earnings growth. Globally, trade tensions between the US and China and fears of recession have added to investors woes.