Global factors and oil price fluctuations make Sensex drop 650 points

The Indian benchmark indices BSE Sensex and NSE Nifty 50 closed on a losing note on Tuesday. Sensex lost 650 points to close at 36481.09 points, which is a drop of 1.73% and Nifty ended at 10817.60 points, down by 185.90 points from the previous day. The investors are backing safer havens due to an attack on an oil refinery in Saudi.

On last Saturday, an oil refinery at Abqaiq was attacked aerially by uncrewed vehicles. The attack resulted in oil prices rising to record levels and sparked geopolitical tensions in the middle east. The United States has blamed Iran for the attack, but the Houthi rebels have claimed responsibility. 

The latest developments in the middle east meant that the gains made by the benchmark indices this year are negated. Sensex, so far in this year has gained 1.14% while Nifty has dropped by 0.4%. The increase in oil price will generally have adverse impacts on the Indian equity markets and Indian rupee. 

As per Nomura Research, a rise of USD 10/bbl in oil prices will hamper Indian GDP growth by nearly 0.2% point. Also, it increases the current account deficit by a whopping 0.4% of the overall GDP. Adding to that, it enhances the fiscal deficit by 0.1% of the GP and results in an increase of 30 basis points to impact on the retail inflation. 

Also Read: Indian Stocks Likely to Remain Firm, Asian Indices Soar

The focus will now shift towards the policy review meeting of the US Federal Reserve, which is scheduled start on Wednesday. The US Federal Bank is expected to cut interest rates to improve the ailing markets due to a global slowdown. Also, the trade tension between the US and China is expected to settle down soon. 

The GST Council meeting is scheduled on 20 September 2019, and the Indian domestic investors would be having a close watch on this. The auto sector is expecting to receive stimulus in the form of tax rate cuts. A cut in the tax will boost consumption and will help to prevent worsening of the slowdown.

The auto stocks are performing poorly of late as sales have gone down considerably. Ahead of the GST Council meeting, the auto stocks have seen a considerable drop. The shares of Tata Motors Ltd slumped 5.11%, Maruti Suzuki India dropped 4.4%, Hero MotoCorp Ltd sank 6.2%, Ashok Leyland plunged 4% while Bajaj Auto Ltd fell 3.4%. 

Ashok Leyland has declared non-working days across many of their plants in September as the demand for their products has continued to have lesser demand. Ashok Leyland has announced a decline of nearly 28% in their total sales in July 2019.

For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in

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