NEW DELHI: Stock markets opened counters on Monday only to walk straight into a massive sell-off driven by the inexorable spread of the coronavirus outbreak and turmoil in the crude oil markets.
India's bourses also had to deal with the fallout of the Yes Bank crisis, which has raised concerns about the health of its banking and financial services sector.
The BSE Sensex crashed by 1,941.67 on Monday, to 35,634.95 points. It was the Sensex's worst fall since August 24, 2015. The broader NSE Nifty fell by 538 points to close at 10.451.45.
The diving bourses were also not reassured by what is generally viewed as an exceptionally good development for India: a record-breaking fall in crude oil prices. India is one of the top three largest consumers of crude oil in the world and the country imports as much as 80 per cent of its oil requirements.
Brent crude oil, which forms a major part of India's crude oil basket, fell nearly 30 per cent on Monday after de facto OPEC lead Saudi Arabia took a hatchet to its oil export prices on Saturday. The nearly 10 per cent cut, aimed at pressuring a recalcitrant Russia, has sent already weak crude oil prices into a free-fall.
The move comes in the wake of Russia declining to join OPEC and other oil producers to continue supply cuts during a highly awaited meeting on Friday. Russia's reluctance to get on board had already sent oil prices crashing to USD 45.27 per barrel on Friday, but the follow-up move by Saudi Arabia to cut export prices seems to have created a new bottom for crude oil rates.
According to analysts, the Saudi move is focused toward pressuring Russia's oil revenues and may well start a new crude price war. Such a steep decline in crude oil prices will come as a bonanza for India, both in terms of cheaper transportation fuels and a healthier current account deficit.
According to calculations, assuming India’s total crude oil demand at the same level as in 2018-19 (226.5 million tonnes), crude oil at USD 50 per barrel would result in a total crude import bill of just USD 83 billion.
At USD 45 per barrel, the import bill will stand at USD 74.71 billion, USD 66.41 billion at USD 40 per barrel and USD 63.09 at USD 38 per barrel. Compare that with FY2018-19’s import bill of USD 112 billion and the estimated USD 105 billion for FY2019-20, and India's trade metrics are poised to improve significantly.
With the price of the Indian crude oil averaging over USD 63 per barrel in 2019-20, "any price below USD 60 a barrel is good for India," Madan Sabnavis, chief economist, CARE Ratings had told TNIE on Friday.
The resulting improvement in India’s trade deficit is likely to mitigate the impact from ongoing disruptions to its net inflows from sectors like software, tourism and transport, which are likely to be significantly affected due to the coronavirus outbreak.
For the consumer, the most direct impact is likely to be a decrease in petrol and diesel prices. So far this year, petrol prices have fallen by Rs 4.5 a litre and diesel by Rs 4.7 a litre.
Oil marketing companies made a cut of 24 paise in the petrol rate and 25 paise in diesel Monday, with much steeper cuts likely over the next week as the benchmarks that the companies use to set prices catches up with the precipitous fall in crude oil value.
However, Sabnavis warns that not all of this benefit is likely to be passed on to the consumer. "The centre and state governments earn over 4 lakh crore from taxes on oil and since a reduction in oil prices will hit this revenue, they may choose to raise rates. It will be a balancing act. So, fuel prices will fall, but are unlikely to come crashing down," he said.