Sensex Falls 275 Points on Iraq Conflict; Fed on Watch

The BSE Sensex and Nifty slipped more than 1 per cent on Wednesday, falling for three out of four sessions as blue-chips including oil refiners slumped on concerns about the impact of higher oil prices on inflation and the government's finances.

The rupee slid 0.65 per cent against the US dollar and bonds also weakened.

Brent crude held above $113 per barrel on Wednesday as heavy fighting in Iraq shut the country's biggest refinery and led to the withdrawal of staff by foreign oil firms, stoking worries about exports from the key oil producer.

India imports 80 per cent of its oil requirements and higher oil prices could make things more complicated for Prime Minister Narendra Modi who won last month's elections on promises of lower price rise, faster economic growth and new jobs.

"They have got hold of one refinery. Surging oil would either eat into India's balance sheet or fuel inflation. It may make life difficult for the new government and the RBI," said Nirakar Pradhan, chief investment officer at Future Generali India Life Insurance.

Asia's third-largest economy imports nearly 4 million barrels per day (bpd) of crude oil - of which more than half a million bpd come from Iraq.

The government expects oil prices to rise as high as $120 per barrel for several months because of fighting in Iraq, potentially driving a hole of at least Rs 20,000 crore ($3.3 billion) in the budget, two government sources told Reuters.

The Sensex lost 1.1 per cent or 274.94 points to 25,246.25 after earlier falling as much as 1.6 per cent

The Nifty fell 0.96 per cent or 73.50 points to 7,558.20 after earlier slumping as much as 1.52 per cent, also closing below the psychologically important 7,600 level.

The rupee touched a low of 60.43 to the dollar compared with its previous close of 60.03/04 and the 10-year benchmark bond yield rose 6 basis points on the day to 8.66 per cent.

High oil prices and the recent spike in food inflation have pushed back hopes of interest rate cuts which added to the negative sentiment in bonds.

Falls also tracked weak global shares after a surprisingly high reading for US inflation threatened to give a hawkish tilt to the Federal Reserve's policy outlook later in the session.

Among oil refiners, Bharat Petroleum Corp fell 3 per cent, Hindustan Petroleum Corp lost 5 per cent and Indian Oil Corp slumped 2.3 per cent.

Oil explorers also fell on worries about a higher subsidy burden as crude oil jumps. Oil and Natural Gas Corp declined 0.5 per cent, while Oil India lost 1.3 per cent.

Reliance Industries fell 2.1 per cent due to lack of any big announcements related to gas pricing and its telecom unit Reliance Jio Infocomm in its annual shareholder meeting, dealers said.

Among other blue-chips, HDFC Bank fell 1.4 per cent while Larsen & Toubro lost 0.8 per cent.

Tata Motors fell 1.8 per cent while ICICI Bank ended 1.9 per cent lower.

However, Cipla ended 2.9 per cent higher after earlier rising as much as 7.3 per cent to Rs 443.25, its highest since October 4, on speculation that the company's founders are in talks to sell their stakes to a global pharmaceutical company, multiple dealers said.

A spokeswoman for the generic drugmaker termed the rumour as baseless.

(Copyright Thomson Reuters 2014)