Sensex drops over 600 points as oil hovers near six-month high and Fed decision looms
Indian equities opened the week on the back foot, with the Sensex dropping more than 600 points, or nearly 1%, to an intraday low of 72,514.57 on Monday and the Nifty hitting 22,387.35, down over 200 points. The selling was broad: the BSE 150 Midcap and BSE 250 Smallcap indices each fell more than 1%, while the rupee slipped 3 paise to 94.96 against the dollar in early trade.
The first drag is crude. Brent has cooled slightly but remains below $115 a barrel and near a six-month high, with attacks on Saudi Arabia keeping supply concerns alive. V K Vijayakumar, chief investment strategist at Geojit Investments, said the price "continues to be too high and, therefore, will constrain any rally from the low level of 22,600 which Nifty touched last Friday." Higher crude feeds inflation fears and complicates the growth-inflation picture for the domestic economy.
The second is geopolitics. The Saudi-led military coalition said it intercepted a ballistic missile fired by Yemen's Houthis after the group claimed a new attack on Riyadh's international airport, keeping Middle East risk at the front of traders' minds.
The third is the US Fed, whose policy decision lands on Wednesday. Traders polled by CME's FedWatch Tool expect rates to be held this week, but see a 75% chance of a hike in December, and the Fed's preferred PCE inflation gauge is due the following day. Vijayakumar's advice to investors: don't fixate on index levels near term, but focus on the value buys thrown up by the correction while staying cautious about the macro fallout of high crude.
