Indian shares decline as higher crude prices dent sentiment

Indian share benchmarks fell on Tuesday, with heavyweight financials leading the decline, as elevated crude prices hurt sentiment, offsetting support from a strong quarterly earnings season and renewed foreign buying.

The Nifty fell 0.46% to 24,471.70 and the BSE Sensex lost 0.49% to 78,154.25.

The 50-stock Nifty was 0.54% lower before the closing auction system kicked in. The narrower difference between the close and pre-auction level was in sharp contrast to the swing last Tuesday, also the weekly contract expiry day.

India’s index-options activity is likely to face continued pressure on key index event days in the near-term as the new closing auction fuels sharp late-session swings, Bernstein said on Tuesday.

Ten of the 16 major sectors fell. The broader small-caps rose 0.2%, while mid-caps settled flat.

Oil prices rose to $90 a barrel on Tuesday, their highest since July 31, as hopes for a U.S.-Iran peace agreement faded over compensation demands.

Higher crude oil prices pose a particular challenge for India, the world’s third-largest oil importer.

“Any sustained increase in crude price at this juncture is likely to have a much larger impact on the overall economy and foreign inflows, making markets vulnerable,” said Dhananjay Sinha, CEO and co-head of equities and head of research at Systematix Group.

Consumer companies, which use crude as a key raw material, fell 1.2%, with 13 of the 15 constituents losing.

Heavyweight banks and private banks dropped 0.4% and 0.6%, respectively. Financials dropped 0.4%.

Foreign investors have bought Indian shares worth $1.5 billion on a net basis so far in August, adding to July’s inflows of $2.1 billion. They have offloaded a record $25.7 billion worth of shares so far this year.

Among shares, Gland Pharma jumped 9.6% after its first-quarter earnings topped analyst expectations, while media firm Zee Entertainment fell 3% after posting a profit drop in the June quarter.

Construction company Dilip Buildcon slid 4.9% after its June quarter profit halved year-on-year.