The Hindu Business Line : Stocks plummet as crude oil jitters continue

The unprecedented spike in crude oil prices by $10 in a single day last Friday had already sent the signals and nearly everyone tuned into the market was prepared for the fall, said analysts.

The Sensex and the Nifty closed lower by 3.25 per cent and 2.74 per cent respectively, as high oil prices typically aggravate fears of a slowdown.

The crude oil price for July delivery had shot up to $139 per barrel on June 6 in New York trade. This had a big negative impact on the US markets on Friday. The contagion was picked by the Asian markets on Monday morning.

Taking its cue from the US and Asian markets, the Sensex opened 456 points lower at 15,115.97. It fell below the 15,000-mark to an intra-day low of 14,846, which was 726 points lower than the previous close.

The benchmark index finally closed with a loss of 506 points, at 15,066.

The Nifty too dropped sharply by 215 points intra-day, to go below the psychological mark of 4,500. It closed with a loss of 127 points, at 4,500.95.

Complicating factor

“We maintain our negative view and expect the market to fall further; it has not fully taken into account the lower earnings growth going forward. The rise in oil prices is complicating everything for us,” said Mr Nilesh Jasani, Head of Research - Asia Pacific, Credit Suisse.

“Indian companies’ earnings growth is expected to be flat or in single digit, going ahead,” said Mr Jasani, adding “inflation might touch 9-9.5 per cent by August-end.”

The Sensex has fallen almost 10 per cent to 15,066 over the last one month, losing 1,671 points from its close of 16,737 a month ago on May 9.

During the same period, crude oil prices have gone up by nearly 14 per cent from $121 per barrel to $139 per barrel.

“A sharp spike in oil prices increased fears of uncontrollably high inflation, already at 8 per cent and predicted to rise to 9.5-10 per cent, given the recent domestic fuel hikes,” said Mr Amar Ambani, Vice-President - Research, India Infoline.

“Expectations of a slowing economic growth, widening deficits, depreciating currency, high inflation and a possible rise in interest rates describe the current macro economic environment of India,” Mr Ambani said.

The FIIs’ exit from the Indian market continued; they were net sellers by Rs 1344.67 crore on Monday. (Foreign investors have sold equities worth $ 4.55 billion or Rs 18,353 crore this year so far.)

However, the domestic institutional investors picked up stocks worth Rs 1030.26 crore at lower levels.

The realty stocks were more severely affected than others; the BSE Realty index closed 7.38 per cent lower. Real estate major DLF (down 7.3 per cent) and Unitech Ltd (down 9.3 per cent) were among the hardest hit.

The advance-decline ratio was steeply in favour of the losers with 2,170 stocks registering losses versus 474 closing in the green.