India’s financial markets on Monday came under intense pressure following a spike in crude oil prices after the United States announced it will end waivers on Iranian oil imports in May. While the rupee plunged 32 paise to close at a two-week low of 69.67 against the US dollar, the Sensex sank 495 points to end at 38,645 in heavy sell-off in energy and financial stocks.
Brent crude futures rose $2.28, or 3.2 per cent, to $74.25 a barrel by 1704 GMT. The session high of $74.52 a barrel for the international benchmark was the highest since November 1, raising worries in emerging markets like India. US West Texas Intermediate crude futures climbed $1.85, or 2.9 per cent, to $65.85 a barrel. The contract hit $65.92 a barrel, the highest since October 31.
US Secretary of State Mike Pompeo said that Washington’s goal was to bring down exports of Iranian oil to zero and there were no plans for a grace period beyond May 1, according to a Reuters report. In November, the US had reimposed sanctions on exports of Iranian oil but granted waivers to Iran’s eight main buyers: China, India, Japan, South Korea, Taiwan, Turkey, Italy and Greece. They were allowed to keep making limited purchases for six months.
China and India are currently the largest importers of Iranian oil. If they do not go along with US President Donald Trump’s demands, it could cause tensions in both bilateral relationships and spill over into other issues, like trade. During intra-day trade, the domestic currency managed to recover some lost ground after touching 69.88, the lowest in over a month. A fall in domestic equity markets also weighed on the rupee. A weak US dollar against major global currencies capped losses of the domestic currency. If the oil price rises further, the rupee is likely to take further beating as the current account deficit will widen, import bill will rise and inflation will flare up, analysts said.
“The rupee has been under pressure due to a sharp rise in crude oil prices in the international market. Profit booking in the domestic equity also pressurised the rupee,” said Rushabh Maru, research analyst – currency and commodity, Anand Rathi Shares and Stock Brokers.
V K Sharma, head-PCG & capital markets strategy, HDFC Securities, said, “Oil extended gains today after the longest weekly winning streak in almost four years as the US government was said to announce that it won’t renew waivers, allowing buyers to import Iranian crude. India is one of the countries that enjoy waivers,” he said. On Thursday, the rupee had gained 25 paise to 69.35 against the US dollar after three sessions of losses.
Meanwhile, the 30-share BSE index settled 495.10 points, or 1.26 per cent, lower at 38,645.18, while the broader NSE Nifty tumbled 158.35 points, or 1.35 per cent, to close at 11,594.45. Reliance Industries fell 2.76 per cent. In percentage terms, major laggards were Yes Bank, Indusind Bank, RIL, ICICI Bank, HDFC and Axis Bank which fell as much as 6.62 per cent. Sectorally, the BSE energy index slumped 2.72 per cent, tracking developments around US sanctions on Iranian oil imports. BSE finance slipped 2 per cent as Jet Airways crisis loomed large over health of banks and lenders.
Crude to rise in near term, could be inflationary
With crude oil prices being one of the most sensitive factors for Indian Rupee and stock market movement, a sharp rise in Brent crude prices on Monday saw the rupee lose around 32 paise against the dollar (0.5 per cent) and the Sensex and Nifty lose 1.3 and 1.4 per cent, respectively. With the US announcing to end waiver for countries importing crude from Iran beginning May 2, there is a strong likelihood of a rise in near-term oil prices. Crude oil prices have already been witnessing a rise on account of supply cuts by OPEC and US sanctions on Venezuela. Rise in oil prices in the near term may not only hurt the rupee and stock markets but may also be inflationary as it impacts fuel prices.
Analysts said investors also turned cautious ahead of announcement of results from key index heavy weights including large banks. “Indian markets had a rough day on the back of sharp rise in crude oil price above $74 per barrel. As a significant importer of crude oil, the high oil price is not good for Indian macros,” said Jagannadham Thunuguntla, senior vice-president and head of research (Wealth), Centrum Broking.
Vinod Nair, head of research, Geojit Financial Services, said, “Investors resorted to mild profit booking post the recent rally given truncated week on account of extended holidays and mixed global cues. Investor turned cautious ahead announcement of results from key index heavy weights including large corporate banks. Despite mixed flows from domestic funds, downside was capped by positive flows from FIIs given good start to Q4 results.”
Shares of Dewan Housing Finance Corporation Limited (DHFL) tumbled nearly 11 per cent following a rating downgrade. The scrip plunged 10.91 per cent to close at Rs 140.05 on the BSE.
Jet Airways, which has shut down operations temporarily, continued to fall for the third day in a row on Monday, closing over 6 per cent lower.
The scrip nosedived 19.34 per cent to Rs 132.20 -— its 52-week low -— during the day on the BSE. It closed the day at Rs 154.60, 5.67 per cent lower.
In three days, the scrip has plummeted 40.94 per cent.