Stocks skid again amid firm crude and weak rupee

The twin benchmark indices prolonged their losses, with the Nifty and Sensex shedding 1.53% and 1.4%, respectively. Other main Asian markets, together with Nikkei, Taiwan, Shanghai Composite and Hang Seng closed 0.96-2.5% decrease.

Value Erosion

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Value Erosion

Concerns about elevated oil costs additionally saved traders nervous. Crude oil continued to commerce close to its current highs, with the benchmark Brent having touched $120 a barrel not too long ago. Rising crude costs are additionally placing strain on the rupee, as India imports greater than 80% of its oil necessities.

“Crude is the foremost headwind for the rupee, inventory market and the financial system now. Depreciating foreign money results in imported inflation, forcing the RBI to desert the accommodative financial stance. The consequent greater rates of interest will adversely influence financial development,” mentioned V.Okay. Vijaykumar, chief funding strategist at Geojit Financial Services.

The rupee prolonged losses, depreciating by 0.34% to 76.17 a greenback.

“We count on the rupee to see additional depreciation in direction of 76.44 ranges if the (foreign money) pair sustains above 76.10. Levels round 75.50 are main help,” in line with the foreign money desk of Emkay Global Financial Services Ltd.

The Russia-Ukraine battle is hurting the rupee, bonds, and equities through the three channels of oil costs, the greenback index, and international fairness costs, mentioned Anindya Banerjee, deputy vice-president, foreign money derivatives and rate of interest derivatives at Kotak Securities Ltd. Brent crude touched a excessive of round $120 this week to the very best degree since 2012. “Oil costs are displaying indicators of fatigue and have pulled again from $120. If oil continues to fall, it is going to be optimistic for the rupee, however barring a fall beneath $100, any pullback may be seen as consolidation inside the giant uptrend,” Banerjee added.

Foreign institutional traders (FIIs) remained internet sellers, although home institutional traders (DIIs) continued to help the markets.

FIIs have offered 84,250.82 crore value of shares until 3 March, whereas DIIs bought 71,873.41 crore value of equities. The provisional figures on the BSE for 4 March indicated FIIs gross sales at 7,631.02 crore value of equities whereas DIIs purchased 4,739.99 crore.

“Domestic establishments have grabbed 50% of FII gross sales in money markets. Reflecting home establishments’ sturdy dedication and optimistic outlook on India,” mentioned Shrikant Chouhan, head of fairness analysis (retail), Kotak Securities Ltd.

However, analysts mentioned that volatility is prone to keep excessive due to heightened geopolitical dangers. The upcoming state elections outcomes, the US Federal Open Market Committee assembly and accelerating inflation will maintain traders on the sting.

Rising inflation is a key concern. Analysts mentioned that with commodity costs on the rise, corporates closely depending on them as uncooked supplies must battle rising costs and a falling foreign money, impacting their working parameters.

“Business confidence throughout producers and service suppliers nonetheless stay subdued led by the continued rise in inflationary pressures,” in line with Acuité Ratings & Research Ltd, While the score company believes the expansion outlook for India might not have a excessive linkage with the rising geopolitical dangers, growing sanctions on Russia can disrupt international commodity markets and provide chains of some merchandise, thereby having an oblique influence on the provision aspect and aggravating inflationary pressures.

Though the near-term issues stay elevated and volatility is predicted to proceed, the steep corrections have made Nifty valuations enticing.

“Post the current correction, the Nifty is buying and selling at 19X 12-months ahead value to earnings, which is decrease than its 10-year common for the primary time since November 2020,” mentioned Siddhartha Khemka, head of retail analysis, Motilal Oswal Financial Services Ltd. Despite the challenges, earnings stay resilient, with December quarter Nifty earnings rising at 25% and ahead estimates staying secure, Khemka mentioned. That will act as a cushion in an in any other case fragile exterior state of affairs, and the current correction has led to moderation.

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