Stocks plummet as crude nears $100

The Sensex closed 1.2% down at 66,800.84 and the Nifty by a similar margin to 19,901.4.

US 10-year bond yields rose to a 16-year high as Brent crude hovered around $96 a barrel, up by about a third over the last three months after Opec+, a grouping of oil producing nations, cut output. While the US Federal Reserve is expected to largely keep rates on hold, high oil prices could force the US central bank’s hand to hike rates later this year.

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“We got to see what the Fed does. It is likely to be a hawkish tone,” said Andrew Holland, chief executive officer, Avendus Capital Public Markets Alternate Strategies.

Higher bond yields in the US make equities, especially emerging market stocks, less attractive as an asset class.

Rising oil prices, coupled with the goods trade deficit hitting a 10-month high in August, also stoked concerns about a rising current account deficit (CAD). A worsening CAD could put pressure on the rupee and drive away foreign investors from investing in the Indian markets.

On Monday, the local currency had touched a record low of 83.26 to a dollar before rebounding on Wednesday to 83.07 amid likely intervention by the Reserve Bank of India.

Provisional data showed that foreign portfolio investors were net sellers of ₹3,110.69 crore worth of stocks in the Indian markets on Wednesday. Domestic institutional investors also resorted to profit booking, selling ₹573.02 crore.

The high valuations of Indian stocks are also a reason for investors turning jittery, analysts said. The Sensex and the Nifty are currently trading at over 18.5 times expected earnings over the next twelve months.

“The markets were in an overbought zone and needed a catalyst to correct, which was in the form of HDFC Bank,” said Holland of Avendus.

The sell-off was led by index heavyweights HDFC Bank and Reliance Industries Ltd (RIL).

The private lender fell 3.87% on Wednesday after its management told analysts that it expects net interest margins, net worth and asset quality to worsen following its merger with parent Housing Development Finance Corp. The fall also led to selling pressure in banking and finance stocks, with the Bank Nifty falling by 1.3%. “I have been negative on banks for a while because of the growth in their unsecured retail book, which causes me discomfort,” said Shankar Sharma, a market veteran. This, he said, isn’t the end of troubles for the shares of HDFC Bank and its peers who have also seen a rise in retail credit. RIL, too, shed over 2% to close at a two-month low following a block deal of 0.3% of its equity base and negative sentiment over rising oil prices.

Broader markets, however, saw a mixed response, with the midcap index closing little changed while the smallcap index lost nearly a percent.

The India VIX, a gauge of expected stock market volatility, rose 2.69% to 11.13. “The focus should be on risk management. Traders may consider adding a few shorts as a hedge to their existing longs,” said Ajit Mishra, senior vice president, technical research at Religare Broking Ltd.

Mishra said the fall in the Nifty is a “normal retracement” so far and expects the 19,600-19,750 zone to provide a cushion in case the fall continues.

ujjval.j@livemint.com

Updated: 21 Sep 2023, 01:05 AM IST