InvestorQ : Why did the Nifty and Sensex correct sharply? I thought they should have gone up after the announcements last week.
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Why did the Nifty and Sensex correct sharply? I thought they should have gone up after the announcements last week.

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2 years ago
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The reforms were quite important especially for the real estate and the exports segment. The finance Nirmala Sitharaman had underlined a Rs.10,000 crore support for completion of unfinished low cost housing projects and Rs.50,000 crore for the exports sector boost. However, the sentiments changed sharply over the week end after drone attacks launched on the oil facilities of Saudi Aramco. This led to Saudi Aramco cutting down its daily oil capacity by nearly 50% and that is going to take some time to come back on stream.

Now, Saudi Arabia is the largest exporter of oil in the world and producers nearly 10 million barrels of oil per day. If Saudi Aramco cuts down its production by nearly 50%, then there is going to be a real shortfall of oil in the market. That supply shortfall would make the prices go higher. It was in response to this expectation that Brent crude prices went as high as $71/bbl before settling around $66/bbl. However, the 11% rise in oil in a single day was the sharpest single-day rally in the last 25 years and that put a lot of pressure on the oil pressures.

India relies on imported oil for nearly 85% of its daily needs and relies heavily on imports from the Middle East region. A 10% rise in oil prices would mean an increase in the current account deficit by nearly 0.6%. Also domestic fuel prices will go up and raise inflation once again. It is for this reason that stocks corrected so sharply. And the major losers were the OMCs like BPCL and IOC and the auto stocks.

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