Markets slip as oil touches $70

Sensex dips, rupee falls to eight-month low.

Markets across Asia tumbled today as the price of crude oil finally broke the $70-dollar-a-barrel mark on fears of a ferocious hurricane bearing down on the US.

US crude oil futures soared nearly $5 a barrel in opening trade to touch $70.80 "" the highest price since the New York Mercantile Exchange (NYMEX) began trading contracts in 1983.

Indian markets felt the heat as the record high in oil prices pulled down shares, bonds and the rupee today amidst fears of corporate earnings being impacted and a rise in inflation. The 30-share Sensex closed at 7,634.43 points losing 45.79 points, after dipping to an intra-day low of 7,566.21 points. The 50-share SP CNX Nifty closed at 2,337.65 points, losing 19.40 points.

The rupee fell sharply against the dollar today "" its eight month low. It lost more than 20 paise during the day to hit a low of 43.92 before closing at 43. 89 to a dollar. It had closed at 43.69 last Friday. This is the Rupee's single biggest fall since July 22.

The rupee last closed weaker than this level on January 10, when it finished at 43.94/96 against the dollar. Dealers expect the rupee to breach the 44 level against the dollar tomorrow.

"There is nervousness but no panic in the markets. It is to be seen whether the government pass on the oil price hike to domestic consumers," said an executive with a brokerage firm.

Government bond yields rose "" and prices fell "" on concerns of a possible rise in domestic inflation. The yield on the actively traded 7.37 per cent 2014 bond rose to 7.0361 per cent, more than 2 basis points higher than Saturday's closing level.

The BSE Sensex is now down 3.6 per cent from its all-time high of 7,921.39 on August 18. Public sector oil company Bharat Petroleum Corporation lost 4 per cent to close at Rs 356.55, Indian Oil Corporation 0.1 per cent to Rs 420.60 and Hindustan Petroleum Corporation 1 per cent to Rs 290.50 on worries that their losses would mount due to higher crude prices.

Auto stocks, too, fell on fears that higher oil prices would hit the sales, dealers said. Tata Motors lost 1.7 per cent to Rs 464.75, Maruti Udyog lost 1.6 per cent to Rs 464.85 and two-wheeler makers Hero Honda Motors and Bajaj Auto lost 1.6 and 1.8 per cent, respectively.

The spot rupee opened at 43.72/73 to a dollar , weaker by three paise against last week's close. Thereafter, it slipped to 43.78/79 which triggered covering by importers and hedging of open dollar positions by banks, leading to a further fall.

According to RN Subramanium, chief dealer with Canara Bank, the rupee is heading for 44 to a dollar given the combination of factors like the rising oil prices, a higher dollar demand by the oil companies and the dropping portfolio inflows.

Exporters have turned fence-sitters, watching the fall and waiting for better realisation of their receivables. In the process, there are huge cancellations of export contracts, putting additional pressure on the rupee to depreciate.

The spot rupee had been holding on to a range of 43.50/60 since the beginning of the current fiscal even as crude prices started surging from $35/36 a barrel to a high of $60 per barrel.