Domestic equities, the rupee, and bonds came under selling pressure on Monday as the sharp surge in global oil prices sparked macroeconomic fears. The benchmark Sensex fell 0.7 per cent, or 262 points, to end at 37,123. The rupee fell nearly a per cent to end at 71.6 compared to the previous day’s close of 70.93 against the dollar.
The yield on the 10-year government security rose nearly 8 basis points to 6.71 per cent. Bond yields and prices move in opposite directions.
The sell-off was triggered after the benchmark oil futures jumped as much as $11.73 a barrel to $71.95 in Asia, the biggest intraday advance in dollar-terms since futures started trading in 1988.
Oil prices spiked after a drone strike on a Saudi Arabian oil facility removed about 5 per cent of global supplies.
“Oil presents a risk to India’s economy and nascent recovery. It leaves the economy captive and vulnerable to external shocks. Crude oil could spike higher in the short term. This could add pressure on the fiscal, if the move is sustained in nature. Moves of this nature generally tend to be short term in nature, and self-correcting, but can inflict meaningful damage on markets if prevailing sentiment is negative,” said Sunil Sharma, chief investment officer, Sanctum Wealth Management.
The strikes on Saudi Arabia have increased the geopolitical risks. Experts said investors were concerned whether the supply disruption at the world’s most important exporter will continue for weeks.
Global investors were seen pulling off from risky assets following the development which took place over the weekend.
Foreign portfolio investors (FPIs) sold shares worth Rs 751 crore, while domestic investors provided buying support to the tune of Rs 309 crore. The latest political risks have come at a time when FPI flows into the domestic markets had begun to turn positive.
“The sudden jump in crude prices has triggered concern over higher inflation and the ability of the RBI to cut interest rate in the future. The market is likely to trade with a negative bias in the short-term,” said Vinod Nair, head of research, Geojit Financial Services.
Among the sectoral indices, the oil & gas index fell the most, led by losses in the shares of oil marketing companies. On the BSE, 24 out of the 31 stocks ended with losses. Among the biggest losers were Mahindra & Mahindra, State Bank of India and YES Bank—each falling over 2 per cent. Technology and consumer goods shares were among the gainers.
The BSE Realty index fell nearly 1 per cent despite the stimulus package announced by the government.
"The third stimulus package did not enthuse the market, given the lagging benefit to export and housing segments by the end of the fiscal year," said Nair.