Mumbai: Equity markets extended their fall for the second straight day amidst heavy selling in front line stocks as rise in global crude oil prices renewed concerns regarding a pick up in inflation that could probably reduce the likelihood of any interest rate cut in the near future.
Apart from that, market participants also pointed out growing fears about the impact of high oil prices on India’s fiscal deficit. The Nifty slumped 47 points or 0.45 per cent to close the day at 10,303.15 while the Sensex lost 151.95 points or 0.46 per cent to end the day at 33,218.81.
“India needs to keep a cautious eye on the surge in global crude oil prices as every $1 per barrel rise in crude prices leads to its import bill rising by $1.33 billion. Also a rising import bill can put downward pressure on the Indian rupee.
In a fiscally constrained environment, a weakening rupee can also lead to higher fiscal deficit if the government decides not to allow OMC’s to hike petrol and diesel prices for consumers and decides to absorb the increased fuel import bill,” said Ajay Bodke, CEO and chief portfolio manager, PMS at Prabhudas Lilladher.
According to him, higher crude prices can also lead to prices of crude derivatives moving up impacting the raw material costs of companies across the sectors, which could put pressure on their margins. “An exuberant Indian equity market needs to digest the far reaching implications of the grave geo-political developments unfolding in West Asia seriously,” he added.
