 "Mkts slump, oil prices rise on West Asia turmoil; Sensex, Nifty drop 0.7%")
Indian equity markets dropped, crude oil prices surged, and the rupee closed at its record low again on Monday as the conflict between Israeli security forces and Hamas militants threatened to escalate further with Jerusalem vowing “mighty vengeance” after suffering a surprise attack on Saturday night.
The ongoing heavy fighting has added another layer of uncertainty for risk assets, which have already been reeling under pressure due to rising US bond yields and a stronger dollar.
The Sensex declined 483 points, or 0.7 per cent, to end the session at 65,512, while the Nifty50 index settled at 19,512 after sliding 141 points, or 0.7 per cent.
The broader markets witnessed a deeper selloff. The Nifty Smallcap100 index dropped nearly 2 per cent – the worst fall since September 12, when it had slumped over 4 per cent. The Nifty Midcap100, on the other hand, slipped 1.3 per cent.
Foreign portfolio investors sold domestic stocks worth nearly Rs 1,000 crore on Monday, while domestic institutions were net buyers to the tune of Rs 2,661 crore.
The unprecedented attack on Israel by Hamas, a Palestinian militant group which rules the Gaza Strip, and the subsequent counter-attack by Israel have shaken the stability in the region and made markets turbulent. The death toll on both sides has crossed 1,300, according to news reports. Investors are worried that the conflict may snowball into a wider battle involving Iran. According to analysts, if Iran gets entangled in the conflict, it will raise the already elevated oil prices.
Crude oil prices rose about 4 per cent on Monday, with Brent crude prices trading around $88a barrel. Oil prices had risen to as much as $97 a barrel late last month, but showed signs of cooling last week.
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Rising crude oil prices are a major headwind for India, as more than three-fourths of India’s crude oil requirements are met through imports.
“In the Asian equities space, assuming oil prices surge in the days ahead, some major Asian net oil importers like India and the Philippines may underperform,” Nomura strategists, including Chetan Seth, wrote in a note.
Also, the rupee fell 2 paise to settle at the all-time closing low of 83.27 against the US dollar on Monday, tracking the rise in the dollar index, dealers said. The rupee had settled at the same level on September 18.
Equity markets have been troubled in the recent past due to macroeconomic uncertainties in Europe and China, hawkish central banks, and selling by FPIs in emerging markets. The 10-year US bond yield was trading at 4.8 per cent on Monday.
Among Nifty 50 components, Adani Ports fell the most at 5.1 per cent. The company runs Haifa port in Israel.
“The Indian market is sensitive to oil price rise. And the current conflict can spike oil prices over a while. The Hormuz Strait is an important spot for oil trade. And if Iran gets involved, it can choke the Hormuz Strait. Moreover, we now have two geopolitical hotspots where the same set of global powers conflict with each other. The only silver lining in this whole conflict is the possibility of yields coming down as investors might rush to US treasuries, which might ease some pressure on the Fed to hike rates,” said U R Bhat, co-founder, Alphaniti Fintech.
Going forward, apart from corporate results, the minutes of monetary policy meetings of major central banks and statements of monetary policy officials will determine the market trajectory, said market players.
Barring three, all Sensex stocks declined on Monday. HDFC Bank, which fell 1.2 per cent, contributed 119 points to the Sensex decline, while Reliance, which fell 0.8 per cent, dragged the index lower by 61 points. HCL Tech and TCS rose 1 per cent and 0.5 per cent, respectively, on optimism around the latter’s buyback proposal.