Surging crude oil may dampen mood in India despite strong cues from US and Asia


  • Crude oil prices hit a 5-week high in US
  • Rising oil prices squeezes corporate margins as well as people's purchasing power
  • Sustained rise in oil prices offset strong cues from US and Asian markets

A five-day rally on Wall Street and Asian markets at a one-month high are strong global cues for Indian markets to start the friday (January 11) with. However, the fact the crude oil prices are back in a bull run could spell doom for the Indian economy as well as the markets.

Oil prices in New York clocked the longest rally since 2010, according to reports. This is bad news for the Indian economy that imports a big chunk of its oil needs, as well as the financial health of companies, which use crude oil as an essential input. For instance, paints and adhesives makers like Asian Paints, Berger, and Pidilite and other packing and logistics companies too.

If oil prices continue to rally, it will hurt the Indian consumer’s purchasing power too and that, in turn, would cap economic growth further.

For the Narendra Modi government, it is bad news as rising crude oil prices would mean more dollar outflow and that it’s already negligible fiscal space for voter appeasement would shrink further in an election year.

However, there may be some respite for Indian equity investors from the rising demand for risk assets, thanks to some dovish comments from the American central bank chief.

The rally in US got extended after the chairman of the US Federal Reserve reiterated on thursday that the central bank would remain ‘patient’ with interest rate hikes. “The word ‘patient’ is used often when the Fed’s policy direction is still tightening but its next rate hike can wait for a considerable time. So risk assets now enjoy support from what we can call Powell put,” said Tomoaki Shishido, economist at Nomura Securities, explained to Reuters.

Simply put, the Fed chair may have put a floor on the stock prices with his statements. That has taken Asian stocks to the highest level in a month.

However, global investors are still a little nervous about the ongoing trade negotiations between team Donald Trump and their counterparts from Beijing. Any fallout may result in a severe dent in global economic growth and therefore, the stock prices.

The key stock to watch out for today would be Tata Consultancy Services (TCS), the biggest software services company in the country, after it announced its quarterly earnings last evening.

The software major’s third-quarter revenue was the highest 14 quarters and the profit growth at 24% was impressive in a rather tough business environment.

Ever since Donald Trump’s curbs on H-1B visa, India tech companies, which depend in a big way on US market for business, have had to hire more high-cost American employees leading to an erosion in margin.

Market may reward the company’s strong show especially in profit margins despite the cost escalation in US as well as the currency volatility in India.
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