Sensex drops more than 700 points as Brent near $96 after fresh US-Iran strikes

Indian equity benchmarks opened sharply lower on Wednesday, 2 September, after Brent crude jumped toward a six-week high on a new round of US-Iran strikes. By mid-morning the BSE Sensex was down more than 700 points from Tuesday's close of 76,944.28. The Nifty 50 lost the 24,000 mark and traded near 23,820.

The session began at 76,471.32 on the Sensex and 23,858 on the Nifty. Early lows ran to 76,135.72 and 23,786.80. Market breadth on the NSE was negative, with more than 2,000 stocks down against about 1,300 up.

Oil, yields and the rupee

Brent rose as much as 2 percent in Asian hours to about $96.60 a barrel after the overnight exchange of fire. Later prints put the contract nearer $95.50, still up on the day after a $4 jump on Tuesday, the largest one-day gain since late July. West Texas Intermediate crossed $90 and later traded near $91.

The US 10-year Treasury yield climbed to 4.79 percent, a roughly 20-month high. Higher yields make emerging-market equities less attractive to global funds. The dollar index sat near 99.74 to 99.77.

The rupee opened at 94.92 against the dollar, a shade firmer than Tuesday's close of 94.95. Oil importers may still buy dollars if Brent stays elevated. India imports most of its crude. A $4 to $5 move in Brent feeds quickly into the current account and into inflation expectations that the Reserve Bank watches.

What sold off

Every major sectoral index was in the red in the first hour. Nifty Auto fell about 2 percent. Nifty Realty was close behind. Nifty IT dropped more than 2 percent as global rate fears hit exporters. Infosys, Eicher Motors and Shriram Finance were among the heaviest Nifty losers. Mid-cap and small-cap gauges also declined.

Coal India was a rare gainer, up more than 4 percent at one point to about Rs 419.65. Pharma and healthcare names held up better than the rest of the tape. Gland Pharma was on watch after the US Food and Drug Administration finished an inspection at its Visakhapatnam plants with zero observations.

The growth print did not help

The National Statistical Office reported 7.8 percent real GDP growth for April-June on 31 August. Manufacturing rose 9.2 percent and services 10 percent. Fixed investment grew 11.9 percent. That print beat the Reserve Bank's 7 percent call and a 7.5 percent economist poll. It did not lift the market.

Tuesday already closed almost flat, with the Sensex down 13 points and the Nifty down 24, even after that GDP release. Foreign institutional investors bought Rs 1,143.38 crore of Indian equities on 1 September. That buying was not enough to offset the oil shock on Wednesday.

GIFT Nifty had already pointed to a weak open, trading near 24,033 against Tuesday's Nifty close of 24,055.80. Asian stocks were lower after Wall Street finished down on the same Iran news.

What the numbers imply

India's import bill for US liquefied petroleum gas has already risen this year as Hormuz traffic stayed unreliable. A Brent print near $96 keeps that pressure on. If the fighting lasts, the Q2 GDP deflator will carry more imported energy cost than the Q1 numbers did.

Gold extended a decline even as oil rose, a sign that traders were selling the metal to fund margin and that they were not treating the strike news as a classic safe-haven bid. MCX crude had already settled above Rs 8,300 a barrel on Tuesday and opened higher again.

The open question for the rest of the week is whether Brent stays above $95 if the Strait of Hormuz sees another tanker incident. A one-day equity drop of 1 percent is ordinary. A week of oil above $95 is not, for a country that still buys most of its crude from outside its borders.