Mumbai: India's benchmark equity index Sensex slumped nearly 650 points, while 50-stock Nifty erased all gains made so far in 2019 as investor appetite for risky assets soured following attacks on Saudi Arabia's oil facilities over the weekend. The attacks not only pushed global crude oil prices to record highs but also sparked geopolitical tension in West Asia.
“The rampant sell off across the horizon for second consecutive day resulted in complete erosion of previous week's gains. The sudden spike in oil prices on account of drone attacks on Saudi Arabia establishments has definitely disrupted sentiments as it tends to adversely impact current account and fiscal deficit, thereby deterring the path of recovery for an economy that is already immersed in a slowdown." said Nischal Maheshwari, CEO – Institutional Equities, Centrum Broking
On Tuesday, the benchmark Sensex closed down 1.73% or 642.22 points at 36481.09 points, while the Nifty 50 ended at 10817.60 points, 185.90 points down or 1.69% lower. So far this year, Sensex has gained 1.14%, while Nifty has declined 0.4%
According to Nomura Research, every $10/bbl rise in oil prices will reduce India’s GDP growth by around 0.2 percentage point, widen the current account deficit by 0.4% of GDP, widen the fiscal deficit by 0.1% of GDP, while adding 30 basis points to headline retail inflation.
Additionally, if higher oil prices result in rupee depreciation against the dollar, “then we estimate that every 5% could add a further 20 basis points to the headline inflation trajectory." Nevertheless, the brokerage does not see a significant breach of the 4% medium-term target for headline inflation due to this escalation.
Investors now await the outcome of the US Federal Reserve’s policy meeting which will start on Wednesday. The central bank is poised to cut interest rates for the second time this year as policymakers try to get ahead of economic risks emanating from a global slowdown and US President Donald Trump’s trade war.
According to CR Forex Advisors, the Fed meeting on Wednesday, where a rate cut of 25 basis points is widely anticipated, shall remain a key event to monitor. If the central bank sounds more dovish than expected due to elevated geopolitical risk, global markets may switch back to safe haven assets, dumping equities.
"Going forward, market participants would keep a close watch on geo-political developments as any further escalation would have an adverse impact on markets and economy. In the near term, the GST meet scheduled on 20th September would be on investors radar as expectations of rate cut are high, especially for the auto sector. The above crucial events in the near term are likely to induce volatility in the markets", said Ajit Mishra Vice President, Research, Religare Broking.
Ahead of a GST Council meeting on 20 September, auto stocks slumped. Hero MotoCorp Ltd fell 6.2%, Tata Motors Ltd 5.1%, Maruti Suzuki India 4.4%, Ashok Leyland 4%, TVS Motors Co Ltd 4%, Bajaj Auto Ltd 3.4%, Eicher Motors 2.9%, Mahindra & Mahindra Ltd 2.5%.
According to Shrikant S. Chouhan, senior vice-president, equity technical research, Kotak Securities, Nifty has broken equilibrium level at 10930 and closed at the lower boundary of the channel. Below 10740, Nifty would enter in quick retracement towards 10637.
Shares of MMTC Ltd fell 16.6%, and State Trading Corp of India Ltd slipped 19.6% following media reports the government may shut the two state-owned trading firms along with another public sector entity PEC Ltd.
CG Power rose 5% after private equity giant KKR India on Monday picked up nearly 10 % stake in the company for over ₹89 crore by enforcing pledge on credit facilities extended to a promoter firm of the crisis-hit company.