Higher prices of crude oil, which threaten to stoke inflation and widen the trade deficit, prompting some investors to take risk off the table. Brent crude oil prices jumped to a nine-month high and were ruling at approximately $113.5 per barrel on Friday evening; the gauge has jumped more than 4% this week. Iraq is the second largest oil producer among Opec nations.
The Indian rupee weakened to a four-week low of 59.77 to the dollar while bonds declined, taking the yield on the benchmark to 8.59% from 8.55% on Thursday. However, foreign institutional investors (FIIs) continued to shop for Indian equities, buying a net $184 million of stocks, according to provisional data from exchanges. FIIs have spent a net $9.3 billion on stocks since the start of 2014,with India getting larger flows than most Asian peers.
The Sensex slipped 348 points or 1.36% to 25,228, while the 50-share Nifty was down 107.8 or 1.4% at 7,542.
India's Asian peers held up relatively well with South Korea's Kospi retreating the most by 1.03% and the Jakarta Composite down marginally by 0.16%. The Shanghai Composite (0.93%), Nikkei 225 (0.83%) and Hang Seng (0.62%) were gainers. Among the major European indices, the FTSE 100, DAX and CAC were all trading in the red at about 5.30 pm IST, down anywhere between 1.06% and 0.82%.
Market participants, however, feel the tension in Iraq will not result in a significant long-term impact on Indian markets. The current crisis in Iraq is not expected to have a large implication on India as we believe that the global crude oil prices will not hold at these high levels for long because of the demand-supply equation. Prices are expected to cool off as soon as these geopolitical prices ease a bit, said Rajesh Cheruvu, chief investment officer, India, RBS Private Banking.
Oil and gas stocks took a beating on the bourses, with HPCL (8.2%), Indian Oil (5.4%), MRPL (5.7%) and BPCL (4.9%) among the major losers. The BSE Oil & Gas Index slipped nearly 2%.
The BSE Sensex remains the best performing market in Asia this year. It has returned 23.48% in dollar terms, beating gains from China's Shanghai Composite (-4.56%), Taiwan's Taiex (6.11%) and South Korea's Kospi (2.07%). Indonesia's Jakarta Composite (18.94%) is the only Asian market to have outperformed India. India has outpaced several of its peers in overseas inflows in the year to date. The country's FII inflows of $9.3 billion are higher than Indonesia's $3.7 billion, Taiwan's $8.2 billion and South Korea's $2.25 billion. FIIs have offloaded shares worth $19 billion in Japan and $1 billion in Thailand.
Industrial production as measured by the index of industrial production grew at 3.4% in April after contracting for two months in a row, owing to the improved performance of manufacturing, mining and power sectors.