Brent crude fell back to below $125 per barrel, after prices surging to 10-month highs with escalating tensions over Iran's disputed nuclear programme. There is however, concern on supply disruptions and market experts say investors will be uncomfortable with any price around $130, which could lead to a selloff.
The 30-share Sensex lost 478 points or 2.67% to close at 17,446. The BSE barometer was down nearly 550 points in intra-day trade, before some amount of buying pulled up the index. The broader 50-share Nifty ended the day at 5,281, down 148 points or 2.73%. According to provisional numbers, foreign investors bought shares worth R329 crore on Monday.
The fall was primarily on account of high crude prices and concerns around Iran, said Saurabh Mukherjea, head of equities, Ambit Capital. If investors see crude trending towards $130, there could be downward pressure on the market. The UP election results will also play an important role. There is still considerable interest among hedge funds to short banks, power, infrastructure and real estate, which has run up over 50% in the last one month, he added.
India is dependent on imports for nearly 80% of its oil consumption and a rise in global crude prices impacts inflation and trade deficit significantly. Oil has advanced nearly 10% this year on concern that escalating tensions in the West Asia will disrupt supply as the European Union has already agreed to ban crude imports from Iran.
Incidentally, Iran is the second-biggest producer in the Organisation of Petroleum Exporting Countries (OPEC). Iran has also threatened to close the Strait of Hormuz, the transit point for about a fifth of global oil, if its exports are banned.
Any rise in inflation would severely impact the market sentiment as investors across the board have been factoring in a rate cut by the central bank sometime in April. Markets are rallying based on indications of the RBI cutting rates against a backdrop of slowing growth and inflation peaking off, said Bank of America Merrill Lynch in a report released on Monday. It is only in mid-2012 when we expect banks to cut lending rates, say, by 50 bps, to revive loan demand that we see growth bottoming out, it added.
On BSE, three out of every four stocks lost ground, with over 2,200 stocks ending the day in the red. Less than 650 stocks managed to buck the trend on Monday, which saw the benchmark Sensex being the worst performer among the leading Asian indices. While Hang Seng was down 0.88% or 189 points, Nikkei lost a marginal 13 points.
In India, index heavyweight Reliance Industries (RIL), top private sector lender ICICI Bank and Infosys, which is the country's second-largest software services provider, led the fall, losing a combined 184 points on the Sensex. RIL lost 4.77% to close at Rs 781.20, while ICICI bank shed 4.80% to end the day at Rs 886.90.
The BSE Bankex fell nearly 4% or 479 points on concerns that a rising inflation would make it difficulr for the Reserve Bank of India (RBI) to cut rates. State Bank of India fell 3.70%, while Yes Bank, Bank of India, Axis Bank, PNB and Union Bank all lost more than 5% each.
US stock-index futures also fell, signaling the S&P 500 will snap a two-day rally after the Group of 20 nations snubbed the euro areas call to boost the International Monetary Funds resources. Almost all the leading European indices traded in the red after G-20 officials told the euro areas political leaders to provide more financial firepower before they consider lending outside support, putting the funding onus on Germany, already the biggest national contributor to the bailouts.