Markets jittery on eve of oil price hike, Sensex plunges

Said BSE broker Pawan Dharnidharka, “Global markets are falling, Nasdaq is sliding, oil prices remain firm, domestic oil prices are set to go up, earnings of tech companies like Intel have been cut. There is only bad news for investors.” The market capitalisation (investors wealth or total market value of all listed shares) of the BSE plunged by 33,000 crore to Rs 6,88,052 crore on Friday alone.

The market crash was triggered by reports that the Government is likely to hike prices of diesel, kerosene and cooking gas by 10-15 per cent by the weekend and lower import duty on crude and products to stem oil pool deficit, which might otherwise reach Rs 24,000 crore by year-end on account of high international oil prices.

Finance Minister Yashwant Sinha is believed to have had detailed discussion with the Prime Minister Atal Behari Vajpayee on Wednesday and a final decision would be taken after Petroleum Minister Ram Naik’s return from Indonesia on Saturday. Vajpayee has already indicated a price hike in petro-products, saying that nation should be ready for hard decisions in view of shooting international crude prices.

With Friday’s crash, Sensex has now fallen by over 600 points in the last five sessions. On Friday, the BSE Sensitive Index opened weak at 4188.47 and gradually moved downwards to close at 4032.37 as against yesterday’s close of 4257.20, showing a net fall of 224.83 points or 5.28 per cent. The BSE-100 Index tumbled by 110.54 points to 2037.32 from previous close of 2147.86.

The investors’ spirit was further dampened following reports that rolling settlement was being introduced from October 24. The sentiment was also affected by a sharp fall of about 69 points in the Nasdaq Composite Index yesterday and a fresh downslide on Southeast Asian stock markets, particularly Hong Kong, Japan and Singapore. The Nikkei closed down by 493 points, Hang Seng of Hong Kong crashed by another 552 points and Singapore ST index dipped by over 55 points.

In the specified group, 131 shares including 29 index based counters recorded sharp losses. Major ICE (infotech, communication and entertainment) stocks were battered with most of them hitting the downward circuit. Infosys, Global Tele, HFCL and Zee Telefilms led the bear rally all the way. “If the government hikes petro prices by more than 10 per cent, the economy would suffer. Earnings of many top companies would be hit, inflation would go up further. This in turn would put pressure on interest rates,” said an analyst.

ICICI Securities (I-Sec) has forecast a slippage of Rs 7,000 to Rs 8,500 crore in the fiscal estimates for the current year, and higher monetisation due to higher oil import bill. “High crude prices are likely to lead to an oil pool deficit of Rs 14,000 crore by the end of the fiscal, after adjusting for which the total indirect tax collections are expected to be Rs 11,000 to Rs 12,000 crore lower than the budget estimates,” I-Sec said.

On the other hand, I-Sec said the oil import bill, expected to cross $ 18.5 billion if the prices stay firm around the current levels, would result in rise of 40 to 45 per cent in the trade account deficit (Directorate General of Commercial Intelligence and Statistics coverage) or 20-25 per cent (as per RBI format).