The S&P 500 fell 1.2% from its all-time high on Friday, joining a worldwide market decline as Brent crude oil prices surged 3.3% to $109.26 per barrel. According to Associated Press, the U.S. stock market drop was led by technology stocks, with Nvidia falling 4.4% and Micron Technology dropping 6.6%, despite both companies maintaining strong year-to-date gains. The Dow Jones Industrial Average dropped 537 points (1.1%) and the Nasdaq composite sank 1.5% from records. Market analysts suggest the decline reflects concerns about overbought territory, with Annex Wealth Management noting that while strong corporate profits remain intact, the path is unlikely to be smooth. The Russell 2000 index of smaller companies fell 2.4%, double the S&P 500's loss, as higher borrowing costs impact these companies more significantly.
Oil marketing companies experienced significant stock declines despite the government's first fuel price hike in over four years. According to latest market data, Bharat Petroleum Corporation Ltd declined 2.71%, Hindustan Petroleum Corporation Ltd dipped 2.39%, and Indian Oil Corporation fell 1.85% on Friday. The modest price increase of ₹3 per litre for both petrol and diesel proved insufficient to offset the daily losses these companies are currently incurring. Paint manufacturers, which use crude-linked derivatives as key raw materials, also traded lower with Indigo Paints declining 1.36%, Asian Paints slipping 0.42%, and Berger Paints India falling 0.14%.
The retail fuel price increases for both petrol and diesel were implemented as part of the government's pricing strategy to cushion consumers from rising global prices. However, as reported by Crisil and ICRA, the magnitude of these price adjustments was not sufficient to address the underlying financial challenges facing oil marketing companies. The government had earlier reduced excise duty on petrol and diesel by ₹10 per litre each on March 27 to help offset some of the global price pressures. Petrol prices in Delhi increased to ₹97.77 per litre from ₹94.77 earlier, while diesel prices rose to ₹90.67 per litre from ₹87.67. CNG prices were also increased by ₹2 per kg in major cities, taking rates in Delhi to ₹79.09 per kg and Mumbai to ₹84 per kg.
Despite the price hike, oil marketing companies continue to face significant financial challenges. ICRA estimates that at crude oil prices of $105-110 per barrel, OMCs would still incur losses of around ₹500 crore per day on petrol, diesel and LPG sales even after the latest revision. According to YES Securities, OMCs are still estimated to be losing around ₹3.2/litre on petrol and nearly ₹7.5/litre on diesel after the hike. Industry estimates suggest the three state-run fuel retailers were together incurring losses of nearly ₹1,000 crore daily before the latest revision. Sourav Mitra from Grant Thornton Bharat noted that under-recoveries were at around ₹13-15/litre for petrol and ₹17-18/litre for diesel prior to the hike, with almost ₹10/litre retail hike needed to cover 50% of under-recoveries.
The fuel price hike has significant economic implications beyond the immediate market response. Economists estimate the immediate direct impact of the fuel hike on retail inflation at 12-20 basis points, with total effects—including secondary pass-through—likely ranging between 15-30 basis points over the coming months. The ₹3/litre increase in diesel prices could raise freight operating costs by around 2-3%, with heavy vehicle freight costs increasing by nearly 60-100 paise per kilometre. The hike comes after global crude oil prices surged more than 50% since the US-Israeli strikes on Iran on February 28 and Tehran's subsequent retaliation disrupted energy flows through the Strait of Hormuz, through which nearly one-fifth of global oil and gas trade passes. Prime Minister Narendra Modi this week called for fuel conservation, lower travel and reduced fuel consumption to contain the country's import bill and ease pressure on foreign exchange reserves.
