Indian equities tumbled over 1.7%, its steepest fall in four months, on Monday as surge in crude increased concerns of nation’s import bill. Crude oil prices hit a near nine-month high due to increased tensions between the US and Iran.
At 12.52 pm, the benchmark Sensex was down 1.72% or 714.08 points at 40,750.53 while the Nifty fell 1.77% or 216.15 points to 12010.50.
In early deals on Monday, Brent crude advanced 2.7%, hitting a nine-month high. Prices have gained nearly 7% so far this year.
India imports nearly 80% of its crude oil consumption. Tensions in the West Asia could threaten global oil supplies, push prices higher leading to a jump in India’s import bill. Additionally, India is yet to develop significant oil reserves although refiners have 15-30days of usable inventories. The geopolitical turmoil could put pressure on development of domestic oil and gas fields and increase demand for blending of bio-fuels, analysts said.
“Market lost the positive momentum due to sudden spurt in geo-political tension between US-Iran leading to spike in oil prices. Premium valuation and lack of fresh triggers influenced investors to take a cautious approach,” said Vinod Nair, head of research at Geojit Financial Services
Shares of oil marketing companies fell, with Hindustan Petroleum Corp Ltd down 5%, Bharat Petroleum Corp 1.6%, Indian Oil Corp Ltd 1.7%.
“A sharp rise (in prices) would challenge the ability of the oil marketing companies (IOCL, BPCL, HPCL) to maintain their current marketing margins. Global oil demand remains weak. Rise in oil prices would further put stress on refining margins in addition to higher fuel and loss”, said Motilal Oswal in a note to its investors.
Shares of paint companies also fell as crude oil accounts for nearly half of the raw materials used at these companies. Asian Paint fell 2.4%, Kansai Nerolac Paints Ltd 4%, Berger Paints India 3.2%.
Banking stocks fell as yield on 10-year government bonds rose. Canara Bank 5%, nPunjab National Bank 5%, Bank of Baroda 4%, RBL Bank was down 3.7%, State Bank of India 3.7%, Federal Bank 3%, Yes Bank 3%, Indusind Bank 2.5%, ICICI Bank 2%, Axis Bank 1.8%, HDFC Bank 1.8%.
US indices fell sharply on Friday as geopolitical tension saw crude hit 9-month highs, while gold prices also jumped to over 6-month high on safe haven buying. Asian indices started week on subdued note, with Japan’s Nikkei down nearly 1.8% in early trade as they resumed trading after New Year holidays.