Stocks on Monday tumbled amid fears that a surge in oil prices following an attack in Saudi Arabia could further slow down the growth in the economy which was already facing a demand slowdown. The BSE benchmark Sensex plunged 642.22 points, or 1.73 per cent, to 36,481.09 and the broader NSE Nifty fell 185.90 points, or 1.69 per cent, to 10,817.60.
With today’s fall, the Sensex has fallen 904 points in the last two days after the attack on Saudi Arabian oil installations. Investor wealth, or market capitalisation of listed companies, declined by Rs 2.72 lakh crore to Rs 1.39 lakh crore in the stock sell-off in the last two days. The rupee on Tuesday weakened by another 18 paise to settle at 71.78 against the US dollar as investors fretted over the impact of higher crude oil prices on the current account deficit and fiscal deficit.
Analysts said rupee asset markets were under a cloud since Monday after geopolitical risks were revived by attacks on Saudi Arabia oil facilities. India is amongst few in the region most exposed to higher oil prices due to its rising reliance on energy imports and sizeable oil trade deficits. “The extent of oil gains hinges on how long the outage lasts. It remains to be seen if Monday’s price surge sustains. If it does, it could complicate the economy’s macroeconomic outlook, as sensitivity of external balances to oil prices is high,” said Radhika Rao, economist, DBS Bank.
RBI Governor Shaktikanta Das had also warned on Monday that India’s current account and fiscal deficits could worsen if oil prices remain at the elevated level. Many experts also opined that higher oil prices were likely to severely hit economic conditions in India, which imports more than 70 per cent of its oil requirements. India’s growth rate has already fallen to the 5 per cent level in the June quarter, raising concern over the macroeconomic fundamentals.
All sectoral indices ended in the red with BSE auto, realty, metal, bankex, finance, oil and gas, energy, teck and IT indices falling up to 3.80 per cent. The broader BSE midcap and smallcap indices followed benchmarks and declined up to 1.84 per cent.
Crude volatility may lead to decline in capital inflows
The surge in oil prices has come at a time when the government is making efforts to boost the economy after the GDP growth slumped to 5 per cent, the slowest in more than six years. Moreover, an increase in inflation stoked by higher fuel prices will also leave less space for the RBI to retain an accommodative policy stance to combat the slowdown. India is among few in the region most exposed to higher oil prices due to its rising reliance on energy imports and sizeable oil trade deficits. If the price surge sustains, it could complicate the economy’s macroeconomic outlook, especially the country’s current account and fiscal deficits. It could also mean a decline in capital inflows. Markets are nervous, at least for now.
The surge in oil prices has come at a time when the government is making efforts to boost the economy after the GDP growth slumped to 5 per cent, the slowest in more than six years. Moreover, an increase in inflation stoked by higher fuel prices will also leave less space for the RBI to cut interest rates to combat the slowdown. Foreign institutional investors (FIIs) sold equities worth Rs 808.29 crore on Tuesday, exchange data showed. Investors were also awaiting cues from the upcoming trade talks between China and the US as well as a much-anticipated policy meeting of the Federal Reserve, scheduled to begin later in the day.
The rupee has plunged by 86 paise against the US dollar in the last two days amid concerns over soaring crude prices.