Investors flee stocks as war fears grow | spcilvly

Selling pressure, led by retail and foreign portfolio investors (FPIs), led India’s VIX volatility index to record the biggest rise in 10 months, indicating nervousness in the market over the impact of the war on the crude oil and rupee prices.

The benchmark Nifty and Sensex fell over 0.7% each, while small and midcap indices fell at a faster pace. The Nifty lost 141.15 points to close at 19,512.35, while the Sensex fell 483 points to 65,512.39 as FPIs sold provisional value. $997.76 crores. Although retail figures are not available, the steeper decline of 1.3-1.6% in the Nifty Midcap 150 and Nifty Smallcap 250 indices suggests significant selling by the retailer as the interim purchase of $2,661.67 crore contributed by domestic institutional investors, including mutual funds, could not prevent the market crash.

Graphic: Mint

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Graphic: Mint

The rupee fell 2 paise to a record low of 83.27 per dollar, while the 10-year bond yield rose 4 basis points to 7.38%. A basis point is one hundredth of a percentage point.

India’s VIX, which measures short-term market volatility expectations, rose 12.11% to 11.40, the biggest increase since the 12.94% jump on December 21, 2022, when the market began to correct from an all-time high of 18,887.60. Brent crude oil rose 3.4% to $86.22 a barrel. Market experts said the main risk of the conflict for India was the rise in the price of crude oil.

“Every dollar increase in the price of crude oil leads to more foreign exchange outflow from the country,” said Prashant Khemka, founder of WhiteOak Capital Management. “From a global stock market perspective, the question now is whether the conflict remains localized or spreads.” more players, which could have repercussions.

The conflict in West Asia has raised concerns about a further rise in crude oil prices, with serious implications for net oil importers like India, as a higher oil import bill could hit the current account deficit, exert downward pressure on the rupee and increase inflation. pressure in an election season. That could also pressure the government to spend more on energy subsidies, reduce excise taxes on gasoline and diesel sold in India at international “parity prices,” or allow fuel retailers like Indian Oil Corp. to take a hit in your accounts.

With five states going to the polls later this year and national elections scheduled for early next year, offering relief to consumers is expected to be a high priority of the political executive. An increase in the cooking gas subsidy in $The reduction of between 100 million and 96 million poor households was announced last Wednesday, and a planned expansion of the free cooking gas connection scheme Ujjwala Yojana is expected to boost India’s subsidy spending. The objective of the Ministry of Finance is to limit the fiscal deficit to $17.8 trillion or 5.8% of the gross domestic product (GDP).

India imports 85% of its energy needs and shipments of crude oil and petroleum products rose 30% to $209.57 billion in 2022-23. However, in this fiscal year, the import bill has so far declined amid low prices until August. As of July, India has imported crude oil worth $43.21 billion, down 22% from $55.66 billion in the same period last year.

Madan Sabnavis, chief economist at the Bank of Baroda, said in an analysis that the oil price of $90 could be used as a threshold beyond which there are problems for the global economy. “Iran’s entry into the fray may affect sea routes and increase transportation and insurance costs,” Sabnavis said, adding that the depreciation of the rupee will require RBI intervention.

Andrew Holland, chief executive of Avendus Capital Public Markets Alternate Strategies, said: “Initially there could be a flight to safety, i.e. the dollar, and higher oil prices. “We need to wait and see if the conflict escalates and spreads to the Middle East.”

Nifty losses were led by Adani Ports & Special Economic Zone, HDFC Life Insurance, Hero MotoCorp, Mahindra & Mahindra and Tata Steel. Adani Ports, owner of the Haifa port in northern Israel, fell in part due to the war and news of a proposed article by the Financial Times about allegations of over-invoicing of coal imports by the conglomerate. The Adani group issued a statement on the proposed news, calling it malicious.

Hero MotoCorp fell after the Delhi Police lodged an FIR against the company’s MD and CEO Pawan Munjal in a case dating back to 2010 over alleged currency counterfeiting.

Excluding cash sales on Monday, FPIs sold $22,495 crore in September and so far this month. They are also net sellers of index futures, being short a cumulative 84,368 contracts, mainly in Nifty and Bank Nifty as of October 6.

Gireesh Chandra Prasad contributed to this story.

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Updated: October 9, 2023, 11:49 pm IST

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