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Last Updated : Nov 07, 2017 03:31 PM IST | Source: Moneycontrol.com

Sensex, Nifty crack amid strong oil prices; 5 factors that led to the fall

Apart from oil price fall, technical factors, rupee movement, effects of Paradise Papers investigation and pharma pack correction led the decline on Sensex and Nifty. Here’s a look at all these 5 factors.

A 2-1/2 year surge on global prices strained the Indian market on Tuesday, with benchmark indices losing well over 0.75 percent.

The Sensex fell 387 points intraday, while the Nifty fell over 135 points intraday.

Banks, pharmaceuticals, infrastructure and auto indices, among others, fell the most among all indices, while IT index stood out.

Lupin and Cipla were the top losers, while Infosys, HCL Tech and TCS gained the most.

Apart from oil price fall, technical factors, rupee movement, effects of Paradise Papers investigation and pharma pack correction led the decline on Sensex and Nifty. Here’s a look at all these 5 factors.

Boiling Crude oil prices

Oil marketing companies as well as aviation stocks declined in intraday Tuesday, following sharp rally in crude oil prices in international markets. Brent crude oil hit $62.46 per barrel, a 26-month high, after Saudi Arabia’s King Salman ordered the arrest of ministers, princes and billionaires in an anti-graft drive.

"India needs to keep a cautious eye on the surge in global crude prices as every $1 per barrel rise in crude prices leads to its import bill rising by $ 1.33 billion. Also, a rising import bill can put downward pressure on Rupee,” Ajay Bodke, CEO & Chief Portfolio Manager, Prabhudas Lilladher told Moneycontrol.

“India's import bill rises by $1.03 billion for every 1 Rupee weakening in Rupee vis-a-vis US dollar. In a fiscally constrained environment a weakening Rupee can also lead to higher fiscal deficit if the government decides not to allow OMCs to hike petrol & diesel prices for consumers and decides to absorb the increased fuel import bill,” he said.

Bodke is of the view that increased crude prices can also lead to prices of crude derivatives moving up impacting the RM costs of companies across the sectors and leading to margin pressure

Technical Factors:

The index made a ‘Shooting Star’ kind of pattern on the daily charts on Monday which was enough to indicate that the trend could be turning sideways.

The S&P BSE Sensex and Nifty50 which started on a muted note witnessed heavy selling pressure towards the close of the session. The S&P BSE Sensex slipped over 300 points while the Nifty50 slipped below its crucial support level of 10,400.

The Nifty Future Index witnessed a sizeable rally of almost 6 percent in the October series closing significantly beyond the 10,000 mark, but November series might not see a similar move amid the presence of multiple resistance levels in the range of 10,400-10,700.

Multiple overhead resistances and negative divergence suggest few choppy trading sessions on the card, suggest experts. However, corrections can be used as a buying opportunity as major trend remains bullish.

“Following sharp up move witnessed in October, Nifty has reached resistance of 61.8% Fibonacci retracement placed at 10,500 levels. Moreover, negative divergences are also building up on multiple time frame charts suggesting that the up move is losing its momentum,” Aditya Agarwala, Technical Analyst, YES Securities (I) Ltd.

“Failure to cross 10500 on a closing basis can trigger profit booking dragging the index lower to levels of 10250-10115. However, a close above 10500 on good volumes can extend the up move to levels of 10645-10710,” he said.

Rupee movement

The oil price surge has led to a weakness in the rupee as well. The Indian currency breached 65 per US dollar mark on Tuesday.

Meanwhile, in the morning it slipped by 6 paise to 64.74 per dollar, paring its early gains, in late morning deals on bouts of fresh demand for dollars from importers and banks amid lower domestic equities.

The rupee opened higher at 64.65 per dollar as against Monday’s closing level of 64.68 per dollar at the interbank forex market.

Pharma drag

Frontline pharmaceutical stocks dragged the most on the Street today on the back of weakness in Lupin spilling over to other companies too.

Lupin touched 52-week low of Rs 890.10, slipping 15 percent intraday Tuesday as company has received warning letter from USFDA. The company's formulation manufacturing facilities at Goa and Indore (Pithampur Unit II) received warning letter from USFDA. The company earlier had received 3 Form 483 observations in Goa on April 7, 2017 and 6 Form 483 observations in Pithampur (Unit II) on May 19, 2017.

Cipla share price fell as much as 8 percent on Tuesday despite better-than-expected earnings for the quarter ended September 2017, dented by weak sentiment after Lupin received warning letter for two sites.

Paradise Papers

On the back of new names emerging in the Paradise Papers investigation, benchmark indices could have also reacted to names of listed companies being dragged in it. For instance, A company registered by Appleby in tax haven Mauritius invested in an Indian firm that is at the heart of a probe by CBI and ED into what is called the Rajasthan Ambulance scam. One of the founders of the firm is the son of Congress leader and former Union minister Vayalar Ravi, Indian Express reported.

Elected to Rajya Sabha from Bihar in 2014 as a BJP member and considered one of the richest in the House, Ravindra Kishore Sinha, a former journalist who founded the private security service firm SIS or Security and Intelligence Services, heads a group which has two offshore entities, Indian Express reported.

This could lead to a further speculation that the Street could be factoring in with more names likely in the coming days.

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First Published on Nov 7, 2017 03:31 pm
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