Crude oil prices surged, after reports that a U.S. Navy destroyed an Iranian drone in the Strait of Hormuz, a critical point for global crude flows, again raising tensions in the Middle East.
Brent Crude Futures gained $1.30 cents, or 2.2%, at $63.24. They had dropped 2.7% on Thursday, falling for a fourth day, but today's gains narrowed those losses.
A rally in crude prices is not good news for India, given that it leads to an increase in retail inflation, which ties the hands of the centra bank in cutting interest rates. A rise in crude prices also tends to increase the fiscal deficit of the government.
Meanwhile, India's stock market reacted negatively to the downing of the Iranian drone by the US navy, as India is extremely sensitive to crude prices.
The Sensex was trading with losses of more than 226 points, while the Nifty at one stage had dropped below the 11,500 points. If the present weakness continues, in all probability the Nifty and the Sensex could end the week lower. Losses on the Sensex were led by stocks like Tata Motors, Mahindra and Mahindra. Most of the losses were seen in the two wheeler and four wheeler space.
Analysts do not rule out a further downside in stocks, despite strong global cues.