Oil prices soar; stocks, rupee fall as West Asia conflict escalates

New Delhi: With the West Asia crisis showing no signs of de-escalation, Indian financial markets received a jolt on Monday as key equity indices Sensex and Nifty slumped by around 2 per cent and rupee dipped to a fresh lifetime low as surge in oil prices stoked fears of high inflation and weak economic growth.

Brent crude price soared to near $120 a barrel, the highest level since July 2022. The crude oil prices have surged by nearly 60 per cent since the beginning of a joint airstrike by the US and Israel on Iran on February 28.

On Monday itself the crude oil price surged by over 25 per cent.

The surge in crude prices stoked fear of inflationary pressure in India, which imports nearly 90 per cent of crude oil requirements.

According to analysts, every $1 increase in per barrel price of crude oil may increase India’s import bill by around $2 billion (over Rs 18,000 crore).

“The sustained rise in crude prices is likely to complicate the RBI’s policy outlook by keeping inflation elevated and posing risks to growth,” said Vinod Nair, Head of Research, Geojit Investments Limited.

The Indian rupee crashed to its all-time closing low of 92.33 against the US dollar, losing 59 paise during the session.

The 30-stock benchmark Sensex closed 1.71 per cent or 1,352.74 points down at 77,566.16. It crashed to a low of 76,424.55 points in the intra-day.

The wider Nifty50 of NSE ended the day 1.73 per cent or 422.40 points down at 24,028.05 after hitting a low of 23,868.05 points in the intra-day. The Nifty PSU Bank ended 3.97 per cent down.

FIIs pulled out $829.9 million from the Indian markets on Monday, taking the cumulative outflow in the current financial year to $6.1 billion.

“The spike in oil prices, weakness in the rupee, and continued foreign institutional investor (FII) selling further intensified the sell-off in domestic equities,” said Ajit Mishra, a senior vice president Religare Broking.

The West Asia crisis has made Indian investors poorer by over Rs 22 lakh crore in just over a week.

The combined market capitalisation of all companies listed at BSE fell by Rs 8.5 lakh crore to around Rs 441 lakh crore on Monday.

Analysts said prolonged periods of elevated crude oil prices would accelerate foreign capital outflow, further weaken rupee and drive up inflationary pressure. According to SBI Research, every $10 increase in the oil price may lead to 35-40 bps rise in inflation.

However, the Modi government sought to downplay the inflation risk.

“Given that India’s inflation is near the lower bound, the impact on inflation is not estimated to be substantial at this point,” Finance Minister Nirmala Sitharaman said in a written reply in Lok Sabha.

She added that the medium-term impact of the global crude oil price rise on inflation would depend on several factors, including exchange rate movements, global demand and supply situation, monetary policy transmission and the extent of the indirect pass-through.

Meanwhile, the government has ruled out any immediate hike in retail price of diesel and petrol despite the surge in import bills.

According to official sources, oil marketing companies are expected to absorb the current cost pressure for the time being.

Last week, cooking gas price was hiked sharply. Price of an LPG cylinder for domestic use has been hiked by Rs 60 while commercial cylinders have become costlier by Rs 114.5 each with effect from March 7.

To prevent hoarding the oil marketing companies have increased the minimum waiting period for booking a domestic LPG cylinder refill from 21 days to 25 days.