Sensex, Nifty drop over 2.3% as Brent crude oil touches 14-year high

Sensex falls nearly 1,500 points with financial stocks being biggest drag

A sharp rise in global oil prices sent shock waves across the domestic market on Monday, with the benchmark indices dropping to their lowest levels in more than seven months.

The Brent crude oil price rose up to $139 a barrel for the first time since July 2008 on concerns that a possible ban on Russian oil exports would tighten the energy market further. The rising prices of oil and other commodities stoked fears of stagflation and erosion of corporate profitability. Sectors sensitive to oil prices such as automobiles, airlines, and paints suffered heavy losses, while companies that stand to gain from the spurt in commodity prices saw their stock prices soar.

The Sensex fell 1,491 points, or 2.74 per cent, to end at 52,843, its lowest close since July 30, 2021. From its peak of 61,766 in October, the index is down 14.4 per cent, while on a year-to-date basis, it is down 9.3 per cent. The Nifty 50, on the other hand, ended the session at 15,863, down 382 points, or 2.3 per cent. The Nifty’s decline was relatively less as ONGC, Hindalco, and Coal India —not part of the Sensex —rose sharply. Investor wealth worth Rs 5.69 trillion wiped out in Monday’s market fall. 

Brent crude pared some of the gains to trade below $130 a barrel as investors eyed the US and Europe’s next move against Russia. Meanwhile, traders have started placing bets on the oil derivatives market that crude oil might touch $200 before the end of this month.

“The Russian invasion of Ukraine and likely lower exports of Russian crude oil will keep crude oil prices elevated for a protracted period. We estimate the Indian economy to incur an additional $70 billion burden (1.9 per cent of gross domestic product) versus FY2022 levels at an average crude price of $120 per barrel. Also, we see meaningful upside risks to inflation and downside risks to corporate profits through increased pressure on margins and volumes both,” said Sanjeev Prasad, MD & co-head, Kotak Institutional Equities.

The Indian markets and the rupee were among the worst performers globally, thanks to the country’s huge dependence on oil imports.

“There appears to be a major split developing in the Asian currency grouping along the lines of short commodity importers and long commodity exporters. Of this grouping, the Indian rupee is probably the most vulnerable, being also at the mercy of hot-money inflows and outflows from the equity market,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.

Experts said the jump in oil prices threatens to upend India’s fiscal math and economic projections.

“Markets will keep plummeting further till some solution is in sight. All growth projections will be called to question and will have to be revised. The oil going above $130 is an ominous sign. We cannot afford to pay that kind of price,” said U R Bhat, co-founder, Alphaniti Fintech.

Prices of commodities from essential grains to metal and oil rose sharply after Russia invaded Ukraine. Already, countries across the world are grappling with high inflation due to the pandemic. The ongoing war has further exacerbated the challenge of central banks, which had prioritised fighting inflation over facilitating growth since the beginning of the year.

Financial stocks, which typically have FPI shareholding, were the biggest drag on the market performance. Shares of IndusInd Bank fell 7.6 per cent, the most among the Sensex components. While Reliance Industries (down 3.7 per cent), ICICI Bank (-5.2 per cent) and HDFC Bank (-3.1 per cent) made the biggest negative contributions.

Overall, only 783 stocks advanced while 2,684 declined on the BSE. In the past two trading sessions, FPIs have pulled out close to $2 billion (about Rs 15,000 crore) from the domestic market.

“I remain highly concerned about the stagflationary wave sweeping the world. I suspect growth projections for 2022 around the world will need to be sharply revised lower, and it will be interesting to see what the central banks of the world will do,” said Halley.