Markets log worst single-day fall as crude oil prices crash

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March 10, 2020 3:10 AM

Foreign portfolio investors (FPIs) sold shares worth $889 million on Monday, provisional data on the exchanges showed, whereas domestic investors bought equities worth $ 674.45 million.

The overall market breadth remained negative with the BSE Midcap and BSE Smallcap declining 4.73% and 4.20%. The overall market breadth remained negative with the BSE Midcap and BSE Smallcap declining 4.73% and 4.20%.

Indian equities sank on Monday in line with other global markets as crude oil prices crashed and were trading below $35 per bbl. The benchmark Sensex plunged 1,941.67 points or 5.17% to close at 35,634.96 points. Broader Nifty50, declined 4.90% or 538 points to close at 10,451.45 points. This was the biggest fall ever witnessed by the Indian equity markets, wiping out investor wealth worth Rs 6.9 lakh crore.

The 30-share Sensex declined 2,467.44 points in the day’s volatile trading session. Index heavyweight Reliance Industries (RIL) tumbled 12.35% to close at Rs 1,113.15. Tata Consultancy Services replaced RIL to become the most-valued company by market capitalisation in the market. State-owned Oil and Natural Gas Corporation (ONGC) fell 16.3% to close the day at Rs 74.65 on the BSE. However, downstream oil companies such as Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL) gained 6.2% and 5.2%, respectively.

Saudi Arabia decided to ramp up its oil production in an effort to reduce oil prices.

A report by Motilal Oswal said a three-year pact between Organisation of Petroleum Exporting Companies (Opec) and Russia ended in acrimony after Russia refused to support deeper production cuts to support prices hit by the coronavirus outbreak. It stated that Saudi Arabia was set to raise oil production next month. Shares of Aramco, the Saudi Arabian oil giant, ended the 6.5% lower; it had fallen by 9.09% during its previous close. Russia’s Rosneft saw its scrip plunge 4.3% on Friday. Brent crude was trading $ 34.89 per barrel; this is a 22.97% fall from the previous close.

The sharp fall in crude prices led to Goldman Sachs cutting their crude oil price estimates. “The prognosis for the oil market is even more dire than in November 2014 when such a price war last started, as it comes to a head with the significant collapse in the oil demand due to coronavirus. This is equivalent of a Q109 demand shock amid Q215 for a likely Q116 price outcome. As a result, we are cutting our Q2 and Q320 Brent prices forecast to $30 per bbl with possible dips in prices to operational stress levels and well-head cash costs near $20 per bbl,” Goldman Sachs said in a report. However, lower oil prices will impact India positively as far as its oil import bill is concerned.

According to IFA Global Research Academy, with the fall in crude oil prices, monthly imports will get reduced by roughly $1billion. Since crude has fallen by $20 per barrel, it would reduce the monthly bill by $2 billion and annual import bill by $24 billion. Additionally, it stated that the headline inflation would increase by around 0.5%. This would give RBI the leeway to cut interest rates by at least another 50 basis points. “We expect the inflation to revert to 3.5% – 4% levels with a good Rabi harvest and lower crude prices,” IFA Global Research Academy said.

Kotak Institutional Equities mentioned in a report on March 8 that a $ 5-per-barrel change in oil prices for the full year will theoretically impact India’s current account deficit (CAD) by $ 7-8 billion.

Independent market expert Ambareesh Baliga said the fall in the day’s market could impact the sentiment. “Everyday there is almost a 3-4% downfall and everytime investors think it is the right time to get into the market, we witness a steep fall the next day. So, investors finally give up and decide to stay away from the market. Investors who have bought in this market should remain patient and not regret the daily decline. Look at the longer term prospects,” he said.

Foreign portfolio investors (FPIs) sold shares worth $889 million on Monday, provisional data on the exchanges showed, whereas domestic investors bought equities worth $ 674.45 million. The overall market breadth remained negative with the BSE Midcap and BSE Smallcap declining 4.73% and 4.20%. Nifty Bank was down 4.82%. Sectorally, BSE Energy, BSE Metal as well as BSE Information and Technology were the biggest losers.

Like its Asian peers, India ended the day in the red. Bourses in Shanghai, Hong Kong and Japan fell in tandem. Oil companies globally have taken a hit amid the sharp sell-off. Oil companies in China such as Shandong Xinchao Energy was down 4.95%, PetroChina Company was down 0.96%. On the other hand, Sinopec or China Petroleum and Chemical Corporation ended in the green. Exxonmobil had closed 4.8% lower on Friday. Exchanges in the UK, France and Germany were down by around 6%.

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