Indian shares slid on Monday as tensions in the Middle East lifted crude prices, stoking fears of inflationary pressures as well as a rise in the import bill for the world’s third biggest oil consumer.
The S&P BSE Sensex plunged 850 points in intraday trade while Nifty50 gave broke below 12,000 on the downside as rising geopolitical concerns sent crude higher and India Gold to fresh record highs.
The BSE Sensex closed 788 points, or 1.90 percent, down at 40,676.63, while the Nifty50 settled 234 points, or 1.91 percent, down at 11,993.05. The BSE Midcap and Smallcap indices fell 2.31 percent and 1.96 percent, respectively.
The volatility index, India VIX surged 16.60 percent, marking its biggest single-day gain in a year.
This was the biggest fall in Sensex since July 8, 2019. On August 24, 2015, Sensex took a beating of 1,625 points or 5.94 percent, which was the biggest fall in points in the last five years.
The rupee hit its lowest level since Nov. 14 and was last weaker by 0.36% to 72.06 against the dollar as oil prices surged more than 2%.
Fears of supply disruption to oil gained ground after U.S. President Donald Trump threatened sanctions on Iraq, the second largest producer among the OPEC, after its parliament voted in favour of expelling U.S. and foreign troops.
Iraq’s move is an outcome of a growing backlash against the U.S. killing of a top Iranian general in Baghdad on Friday.
Trump also threatened to retaliate against Iran after the country vowed to avenge the killing of its top commander.
Markets worldwide came under pressure from a major escalation in tensions in the Middle, said Ashish Nanda, executive vice president at Kotak Securities in Mumbai. “Equity markets never like uncertainties and it would result in weakness in the short term.”
Shares in oil marketing and refining firms fell on fears of falling margins due to the surge in crude prices. Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd fell 1%-4.7%.
Other Asian equities too fell, while the price of gold hit a near seven-year high as investors flocked to safe havens.
Shares in Indian IT services companies, which benefit from a weaker rupee as they earn a bulk of their revenue from overseas, climbed higher for a second straight session. Tata Consultancy Services was up 0.5%.
Gold surged close to a seven-year peak on Monday, as investors flocked to the safe-haven metal on escalating U.S.-Iran tensions, while palladium surpassed the level of $2,000 to hit a record high.
Spot gold rose 1.7% to stand at $1,577.98 per ounce by 0409 GMT. Earlier in the session, it had rallied as much as 1.8% to touch $1,579.72, its highest since April 10, 2013.
U.S. gold futures gained 1.8% to $1,580.30.
“The geopolitics is taking center-stage,” said Benjamin Lu, an analyst at Phillip Futures. “The Iran-U.S. tensions have escalated to a boiling point, that’s what has been pushing gold prices up.”
Further spurring uncertainty, Iran said it would drop limits on enriching uranium, taking a further step back from commitments to a 2015 nuclear deal with six major powers.
The market’s risk-averse sentiment underpinned bullion, which is often seen as an alternative investment during times of political and financial uncertainty.