MUMBAI: Global equity markets, including India, are in freefall as crude prices spiked up to 25% overnight amid escalating West Asia tensions, stoking fears of inflation, especially among nations that rely on imported oil to meet energy demand.
Brent crude has surged to $118 per barrel following the continued closure of the Strait of Hormuz, limited storage facilities in producer countries, and attacks on oil and gas infrastructure and vessels.
The Indian market’s benchmark index, the BSE Sensex, crashed nearly 2,500 points on Monday morning to hit a low of 77,057, while the NSE Nifty50 fell more than 750 points to below the 23,700 level. Barring Coal India, 49 stocks in the Nifty50 pack were in the red, with IndiGo, Tata Motors, SBI, Tata Steel and Shriram Finance falling the most.
The market downturn echoed global trends, as a bloodbath across Asian indices was seen on Monday morning, with all major indices trading with losses of 5%–8%. South Korea’s Kospi has hit a lower circuit for the second time in four trading sessions. Dow futures are showing a 1,100-point decline, following the sell-off witnessed on Wall Street on Friday.
According to SBI Securities, higher energy prices (crude oil, natural gas and coal) are likely to translate into higher inflation in the coming months, along with an impact on economic activity across major oil consumers such as India, Japan, China, Korea and Southeast Asia. Given that India is a key importer of oil, higher crude prices pose a significant macroeconomic headwind for the country. This may exert pressure on inflation, currency stability and corporate margins, thereby impacting overall equity market sentiment.
The brokerage added that the monthly US non-farm payroll data for February was a negative surprise, unexpectedly falling by 92,000, marking a significant labour market reversal against expected gains of 50,000–58,000. The unemployment rate ticked up to 4.4%.
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the Brent crude spike is delivering a major oil shock to economies and markets. Large oil importers like India will be hit hard if the West Asian conflict lingers and crude prices remain high.
“The market will price in the economic consequences of this oil shock. Inflation will certainly move up, whether the oil price hike is passed on to consumers or not. The unknown factor now is how long the conflict will last. This uncertainty will also weigh on FIIs, who have again turned aggressive sellers in India after the short bout of buying in February,” added Vijayakumar. In the first four trading days of March, FIIs sold equities worth Rs 21,829 crore.
Tensions in West Asia escalated after US and Israeli forces targeted key Iranian sites last weekend, resulting in the death of Supreme Leader Ayatollah Ali Khamenei. Iran swiftly responded with a barrage of ballistic missiles aimed at Israeli cities and key Middle East hubs such as Dubai, Kuwait and Bahrain.
Investor sentiment has soured as the Gulf crisis has led to a sharp increase in crude prices, with shipping through the Strait of Hormuz ,which handles 20% of global oil and 40% of India’s crude imports halting amid the conflict, stoking fears of global supply disruptions. As of now, the two sides — the US-Israel coalition and Iran — continue to launch missiles and drones at each other, with no signs of negotiations or diplomacy to ease tensions in the region.