Investors on Monday shunned equities and rushed to safe haven assets like gold as escalating US-Iran tensions sent crude oil prices soaring, leading to a global sell-off in stocks and currencies. India, too, joined the market rout with the BSE Sensex crashing nearly 788 points — its worst loss in about six months — as markets awaited any Iranian response to the US killing of a senior Iranian commander.
The 30-share Sensex plunged 1.90 per cent, or 787.98 points — the biggest single-day drop since July 8 — at 40,676.63 after hitting an intra-day low of 40,613.96. The 50-scrip NSE Nifty Index closed at 11,993.05, falling by 1.91 per cent, or 233.60 points.
With this, the Sensex has plunged 950 points in the last two sessions, which analysts attributed to the US-Iran tensions and impact of crude price rise. Investor wealth, or market capitalisation, plunged by Rs 3.36 lakh crore in two successive sessions to Rs 153.90 lakh crore.
As India’s dependence on crude imports as a percentage of consumption is the highest, further rise in crude oil prices will impact India’s economy. “India’s fiscal deficit is likely to overshoot the target and tax mobilisation has not kept pace with targets. Crude oil price rise is bad news for India,” said an analyst.
Crude oil price rise may hit govt’s finances
As India’s dependence on crude imports as a percentage of consumption is the highest, further rise in crude oil prices will impact India’s economy. The fiscal deficit is likely to overshoot the target and tax mobilisation has not kept pace with the Centre’s targets. The rupee plunged 13 paise to settle at 71.93 against the US dollar, with traders saying growing geopolitical tensions could continue to keep the rupee under pressure. Gold rose to its highest level in nearly seven years as investors moved into assets seen as havens.
The rupee plunged 13 paise to settle at 71.93 against the US currency with traders saying growing geopolitical tensions could continue to keep the rupee under pressure. Gold rose to its highest level in nearly seven years as investors moved into assets seen as havens, with the yellow metal rising as much as 2.3 per cent to $1,580 a troy ounce abroad, its highest level since April 2013.
Gold prices in Delhi shot up Rs 720 to Rs 41,730 per 10 gram and in Mumbai, standard gold rose to Rs 40,768 per 10 gram, amid safe-haven demand for the metal.
Amar Ambani, senior president and research read, Yes Securities, said, “The market was spooked by fears of an escalation in tensions between Iran and US. With the rupee depreciating and price of crude rising, stocks plunged deep into the red today. World over, investors have flocked to gold as a safe haven. In all likelihood, the geopolitical concern should ease in the weeks to come. We are in the middle of a global ‘risk-on’ trade and an uptrend should resume after a brief pause, unless we see an escalation between US and Iran. I am more focused on local issues around the Indian economy and the Budget, which is around the corner.”
Meanwhile, crude prices hit a three-month high as they rose 2 per cent to nudge above $70 a barrel, their highest level since an attack on a Saudi oil facility last year. Brent has climbed over 5 per cent since the US airstrike in Iraq Friday.
According to Siddhartha Khemka, head—retail Research, Motilal Oswal Financial Services, there would be weakness in the market in short term due to the major escalation in tension in Middle East.
“Market sentiments have turned negative with rising fear of oil supply disruption after US President Donald Trump threatened sanctions on Iraq, the second-largest producer among the OPEC, after Iraq’s parliament voted in favour of expelling the US and foreign troops,” he said
Trump also threatened to retaliate against Iran after it vowed to avenge the killing of its top commander Qassem Soleimani on January 3. Trump’s statement came hours after Iran announced it will no longer abide by the limits contained in the 2015 landmark nuclear deal.
Meanwhile, European and Asian equity markets fell, with the composite Stoxx Europe 600 down 1.1 per cent in morning trading. Japan’s Nikkei was the worst major performer as it fell 1.9 per cent, its steepest one-day drop since early October. Analysts expect the Indian economy to turn around in the coming months.
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