Sensex plunges 800 points as investors dump downgraded oil stocks

The stock markets witnessed a second consecutive day of crash on Friday, with oil marketing companies leading the dive south, even as wary investors braced for the reserve Bank of India's (RBI) rate decision.

Index-wise, the Nifty50 of the National Stock Exchange closed at 10,316.45 points, down 282.80 points or 2.67 per cent from its previous close.

On a similar note, the S&P BSE Sensex ended the day's trade deep in the red. It opened at 35,097.99 points and closed at 34,376.99 points, down 792.17 points or 2.25 per cent from its previous close.

It touched an intra-day high of 35,118.54 points and a low of 34,202.22 points.

A day after the central government cut the prices of fuels and asked the oil firms to absorb Re 1 in the price of each litre of petrol and diesel, the OMC shares tanked up to 28 percent. Shares of Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum hit 52-week lows.

Other blue chips stocks also suffered, with ONGC falling up to 15 percent, Reliance Industries slipping nearly 4 percent and ITC Ltd and Hindustan Unilever Ltd dropping nearly 2 percent each.

The RBI is expected to raise benchmark rates further. Reuters reported that more than half of 61 economists it polled said the repo rate would be raised 25 basis points.

Meanwhile, the three oil retailing majors suffered another jolt in the form of ratings downgrades in the aftermath of the fuel price cuts announced by the central government, as well as 12 state governments.

Goldman Sachs and Citigroup Global Markets downgraded Bharat Petroleum Corp Ltd., Hindustan Petroleum Corp Ltd. and Indian Oil Corp Ltd. While Citi downgraded their ratings on all the three OMCs to sell, Goldman spared Indian Oil Crop.

A Citigroup analyst said that the fuel price cuts were an 'unequivocal negative' for the oil firms and hinted at "high political risk" for the companies.

The oil marketing companies (OMCs) will have to absorb Re 1 per litre in the cost of petrol and diesel with the central government decision on Thursday coming into force. This means that the three state-owned companies will lose around Rs 7,200 crore in the remainder of the current financial year.

"The price cut is credit negative for the PSU OMCs as this would impact their net marketing margins severely. At an industry level, this would lead to loss of margins of Rs 70-72 billion on auto fuel sales," K Ravichandran, senior vice-president at research and ratings agency ICRA, told ET.

According to the Business Standard, the fuel price cut will leave a Rs 45 billion hole in the combined pre-tax profits of these companies in this financial year.

The markets had gone into a free fall on Thursday with the benchmark Sensex crashing over 806 points to end below the 35,200-level after the rupee crashed to a new lifetime low and global crude price breached $86 a barrel.