High oil prices trigger sell-off in markets, ₹ falls most in 7 weeks

A sell-off spurred by rise in crude oil prices drove Indian stocks to their biggest single dayfall since 27 June on worries that expensive oil may led to a fiscal slippage, increase inflationary pressures and lower the chances of the RBI cutting interest rates in its December monetary policy review. The rupee fell the most in seven weeks, while government bond yields surged on fears that higher oil prices will disrupt the budget arithmetic.

The Sensex closed at 33352.15, down 1.12%. The Nifty too closed 0.97% down at 10,350.15. However, markets across the globe were strong with Japan’s Nikkei Index jumping to a 26 year-high.

Rising crude prices is one of the main reasons for the market correction, said Arun Thukral, MD and CEO, Axis Securities Ltd.

Brent crude touched a 28-month high price of $ 64.10 per barrel on an anti-corruption purge by Saudi Arabia’s crown prince. Shares of oil marketing companies (OMCs) and aviation firms reacted negatively.

“The markets cracked due to rising oil prices, disappointing September earnings from a few firms and weakness in pharma stocks. Rupee has also started to weaken. The markets were in overbought zone and were looking for a reason to sell-off,” said Deepak Jasani, head, retail research, HDFC Securities Ltd.

Bloomberg data shows that Sensex firms’ consensus earnings per share (EPS) forecast for the current financial year has been cut by 10.96% since April and by 4.2% for the next year.

Due to the rise in oil prices, the yield of the benchmark 10-year bond, surged to fresh six-month high while rupee dropped most in nearly seven weeks. The 10-year bond yield closed at 6.927%, a level last seen on May 11, compared to its previous close of 6.858%. Bond yields and prices move in opposite directions.

The domestic currency weakened past 65-mark against the US dollar. The rupee fell 0.54%, its steepest fall since September 21, to close at 65.03 a dollar.

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