Stocks dive as oil rallies, rupee slips to record low
Premium- Threat of ban on Russian crude drives up oil prices, posing risks for Indian economy
- High crude oil prices are likely to impact India’s current account deficit
MUMBAI : Fear gripped investors, sending India’s benchmark indices plunging by more than 2%, as the threat of a ban on Russian crude spurred a surge in oil prices that could pose serious risks for the import-dependent country.
On Monday, crude saw the biggest gain since the Russian invasion of Ukraine. The global benchmark, Brent crude, surged to almost $140 a barrel before pulling back to around $125. The Indian currency tumbled to a record low, while stocks and bonds continued a selloff. India imports more than 80% of its oil requirements.
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Benchmark indices Nifty and Sensex plunged 2.35% and 2.74%, respectively, while the rupee closed at a lifetime low of 76.97 against the dollar over concerns of widening fiscal deficit.
Other Asian markets such as Nikkei, Taiwan, Shanghai, Jakarta, and Hang Seng also closed 0.86- 3.87% lower following reports that Western nations are considering a ban on Russian oil imports to punish the country. “Markets are rattled by the sharp surge in crude amid the fear of further sanctions on Russia. Besides, there’s no sign of de-escalation of tension between the two nations," said Deepak Jasani, head of retail research, HDFC Securities Ltd.
“The key concern right now is a sharp rise in crude prices, and if crude prices sustain at higher levels, it is likely to impact India’s current account deficit as well as fiscal deficit," said Pankaj Pandey, head of research, ICICIdirect. As worries over the possibility of further sanctions on Russia weighed on investors, delayed discussions with Iran over the nuclear deal also added to the disappointment. Expectations have been building that resumed global supplies from Iran could ease the tight world crude supply situation.
“The major worry remains on the economic impact of higher crude prices. The Russian invasion of Ukraine and likely lower exports of Russian crude oil will keep crude oil prices elevated for a protracted period," said a report by Kotak Securities Ltd. The brokerage estimates the Indian economy to incur an additional $70 billion burden (1.9% of GDP) versus FY22 levels at an average crude price of $120/bbl. Steep crude prices will pose severe challenges, including higher inflation and lower growth, added Kotak Securities, which expects upside risks to inflation and downside risks to corporate profit estimates through increased pressure on margins and sales volume.
The weakening of the rupee to a record low added to the nervousness.
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Gaurang Somaiya, a forex and bullion analyst at Motilal Oswal Financial Services, said that the “rupee continued to remain under pressure and fell to fresh all-time lows following rising uncertainty between Russia and Ukraine and a rally in global crude oil prices". Momentum has been towards rupee depreciation for the past few sessions as market participants remain on edge following geopolitical tension, added Somaiya.
Meanwhile, selling by foreign portfolio investors (FPIs) continued as global risk-off sentiment prevailed. On the other hand, domestic institutional investors (DIIs) continued to remain buyers. FPIs have sold ₹18,085.15 crore worth of equities in the first four days of March, taking total FPI selling to ₹91,749.44 crore this year. DIIs bought ₹12,599.93 worth of shares in the first four days of March, with total DII buying at ₹76,612.40 crore during 2022.
On the back of the prevailing uncertainties, experts expect volatility to remain high. They said that state elections’ exit polls and actual results on 10 March would be monitored closely.
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