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The pain for Indian markets seems to be aggravating by the day. After the rupee that slipped past the 66-a-dollar mark, crude oil prices are now on a boil. After a soft start, the benchmark indices extended losses in intra-day deals with the S&P BSE Sensex and the CNX Nifty skidding over three per cent each to 17,982 (down 576 points) and 5,304 levels (down 172 points), respectively.
Crude oil futures prices surged 1.2 per cent to Rs 6,951 a barrel. On the Multi Commodity Exchange (MCX), crude oil prices for delivery in September traded 1.2 per cent higher at Rs 6,951 a barrel in intra-day deals.
Analysts attribute the surge to a firming trend in Asia on concerns over possible US military action against Syria. The US has warned President Bashar al-Assad’s regime it would face action over an alleged chemical weapons attack.
Shriram Pitre, senior vice-president and head of commodity & currency research at Anand Rathi Commodities, says: “Crude oil prices (WTI) have surged thanks to the sliding rupee. There is more trouble ahead for oil given the developments in Syria and what’s happening to the rupee.
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“I think $100 a barrel is now the base for (Brent) crude oil and it can touch $120 going ahead. In my opinion, crude (WTI) prices can range from Rs 7,500 to Rs 8,000 a barrel if the rupee slides to 68-70 levels,” he adds.
“We believe, crude oil has emerged as a key risk in the near-term, which is not a good sign for the rupee. Thus, on an overall basis, the macroeconomic outlook has weakened and risks have clearly strengthened,” noted Sanjeev Zarbade, vice-president, private client group research, Kotak Securities.
Currency woes
Emerging market (EM) currencies were under pressure on Tuesday, with the Indonesian rupiah hitting a new four-year low on corporate dollar demand. The Malaysian ringgit was at its lowest level in three years, while the Thai baht hit a three-year low on capital outflows, according to reports. There was little respite for the Philippine peso as well, that slipped to its weakest in more than two-and-half years.
“I think the pressure on Asian currencies will continue. It is a dynamic situation and it is very hard to predict where all this will end. Fundamentally and based on the present and expected current account deficit (CAD) level, it does appear that the rupee is at a fair value now. It should mildly recoup some of its losses,” said Sanjay Mathur, managing director, head of economics research for the Asia Pacific (ex-Japan), Royal Bank of Scotland.
“I don’t think there will be an appreciating trend that will fall in place since we need better growth conditions for that. But certainly there is a care for being more positive on the rupee’s trajectory,” he added.
Points out Shubhada Rao, chief economist, YES Bank: “Round-the-corner US Federal Reserve meeting is adding to the nervousness as regards the rupee. While the government has been taking measures/steps towards devising investment climate by clearing the stalled projects/bottlenecks and addressing concerns related to CAD, these are likely to manifest over the next few months and not in the immediate term. In the immediate term, what is over powering is the risk of taper and therefore the outflow. We expect the Reserve Bank of India to step in intermittently and not on an ongoing action-based regular intervention programme.”
“In a nutshell, amid the weakness in the rupee and a mild uptick in commodity prices, macro concerns have resurfaced. However, the larger concern for the rupee has been clearly emanating from the expected outcome of upcoming US Fed meeting,” she adds.
“Loss of confidence in the rupee is partly due to severe slowdown in global trade and hence, in India’s exports. While most economies in the world were worried about either avoiding or escaping the recession, perhaps we were alone sitting in an island of inflation," said G Chokkalingam, executive director and chief investment officer at Centrum Wealth Management.
“With deteriorating finances of the government and growth not picking up, a final blow to the market could come in terms of a rating downgrade by international rating agencies. This could lead to a f light of capital from the country and further pressure on the rupee,” he adds.
