A continued rise in crude oil prices raised worries over inflation, and hit oil refiners like Reliance Industries, dragging India's benchmark equity indices 1 per cent lower on Tuesday. A sell-off in pharma stocks led by Lupin also added to the pressure.
The BSE Sensex plunged 360 points or 1.1 per cent to close at 33,370.76 points and the NSE Nifty 50 index tumbled 102 points or 1 per cent to 10,350.15 points.
Crude oil prices had jumped 3.5 per cent on Monday to their highest since mid-2015 after the Saudi Arabian crown prince moved to strengthen his power base, arresting many, including royals and investors. Rising tensions between Saudi Arabia and Iran also weighed. On Tuesday, brent crude was trading around $64.08 per barrel.
The rise in oil prices have raised concerns back home, as not only will the inflation go up, but the import bill too will rise and that will put pressure on the Rupee.
“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 the rupee. In a fiscally constrained environment, a weakening rupee can also lead to higher fiscal deficit, if the government decides not to allow oil marketing companies to hike petrol and diesel prices for consumers and decides to absorb the increased fuel import bill,” said Ajay Bodke, CEO and chief portfolio manager at Prabhudas Lilladher.
Oil refining companies were under pressure on Tuesday; Reliance Industries declined 3 per cent, Indian Oil was down 2.5 per cent and Mangalore Refinery & Petrochemicals fell 2 per cent.
Rising oil prices will also leave little room for RBI to cut interest rates, as it wants to keep retail inflation in check.
Meanwhile, shares of pharma major Lupin plunged near 17 per cent on Tuesday to its lowest in nearly four years after the US Food and Drug Administration issued warning letter to two of its facilities.
“The company received a warning letter issued by the US FDA, for our formulation manufacturing facilities at Goa and Indore (Pithampur Unit II),” Lupin said in a statement.
While there is unlikely to be any disruption of existing product supplies from either of these locations, there could be a delay in future product approvals from both these plants, it added.
“Both the plants together contribute more than half of the drug maker’s US sales and approximately 20 per cent of its total sales. Thus any long term severe outcome, which would lead to impact on future earnings of the company, will have impact on shareholder wealth,” said Sarabjit Kour Nangra, vice-president research at Angel Broking.
The US FDA action on Lupin had an impact across the pharma sector on Tuesday. Cipla tumbled over 7 per cent, despite reporting a 19 per cent rise in quarterly profit, Sun Pharma declined 2.50 per cent and Dr Reddy's also fell about 1 per cent.
Elsewhere, State Bank of India and Bharti Airtel fell 3.5 per cent, while Asian Paints, Tata Motors and Tata Steel were down around 2 per cent.
The rise in international crude oil prices also hit the rupee, which weakened past 65 to a US Dollar mark. The rupee, which had closed at 64.68 to the Dollar on Monday, declined by as much as 38 paise to 65.06.
