Double whammy for Indian share market ⁠— oil spikes and exchanges increase margin money needed for intra-day trade

  • India's stock traders are staring at a gloomy friday with a series of bad of news.
  • The spike in oil prices due to the escalating standoff between US and Iran will be bad news for a net importer like India.
  • Further, the stock exchanges have mandated that intra-day traders have to pay up the entire initial margin before placing the order, which is likely to curb trading volumes.
India's stock traders are staring at a gloomy friday with a series of bad of news. Nifty opened the day about a fourth of a percent down at a time when most participants were hoping for a new all-time high for India's benchmark indices.

The spike in oil prices due to the escalating standoff between US and Iran will be bad news for a net importer like India. Further, the stock exchanges have mandated that intra-day traders have to pay up the entire initial margin before placing the order, which is likely to curb trading volumes.

Earlier this morning, Iraq media reported that a top Iranian general reportedly killed in Baghdad airstrike, days after US embassy siege. Pentagon, the headquarter of United States Department of Defense, later confirmed that a powerful commander of Iran’s Revolutionary Guards Corps, Maj. Gen. Qassim Suleimani, was killed in a strike on the Baghdad International Airport early Friday.

The rising tension in the middle east has led to a sharp 3% spike in crude oil prices, which is bad news for a net importer like India, which buys over 80% of its oil needs overseas. This leads to higher inflation for consumers, where the sentiment is already at a 6-year low.

Further, the dollar index hit a one-month high today and a stronger US dollar would mean bad news for exporters.

This means broking firms will no longer be able to offer ‘intra-day trading’ products, a move aimed at reducing risks to the system. But the curbs could adversely impact trading volumes on stock exchanges and force several smaller brokerages to consider winding down their businesses, industry officials told the Economic Times. By paying lesser margin upfront, traders were able to multiply their gains. However, the rise in margin requirement may force people to take less risk.

The shares of Bombay Stock Exchange opened nearly half a percent lower.

All this comes as a shocker for Indian investors who closed Thursday's trading session on a high. The Sensex rallied over 320 points while the Nifty ended at a fresh lifetime high led by index-heavyweights like Reliance Industries and HDFC, HDFC Bank thanks to a buoyant mood globally.

When inflation expectations rise, the bond yields rise too. This will hurt Indian banks which hold a lot of government bonds. So, the impact of that may be visible in banking stocks today.

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