The stock markets on Friday shrugged off positive factory output data as geopolitical concerns in Iraq took centre stage, dragging down benchmark indices by over 1%, the biggest single-day fall in nearly four and a half months.
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