Sensex reverses drop; rupee strengthens to 70.45

India’s shares rose, reversing earlier losses after the price of crude oil, the country’s biggest import, slipped to a 14-month low. The benchmark S&P BSE Sensex rose 0.2% to 36,347.08 in Mumbai, after falling as much as 0.6% earlier in the session. The NSE Nifty 50 Index also climbed 0.2%. Brent crude dropped as much as 4% to $57.20 a barrel, its lowest level since October 2017, data compiled by Bloomberg shows. This added to the rupee’s strength, which rose as much as 1.2% against the dollar to touch its strongest level since December 7. Crude is mired in a bear market as scepticism grows over how output cuts pledged by the Organisation of Petroleum Exporting Countries and its allies will be implemented.

The rupee

The rupee closed at 70.45 against the dollar yesterday, a level last seen on November 30, up 1.57%

Fifteen of the 19 sector indexes compiled by BSE advanced, led by a gauge of power shares. ICICI Bank and Larsen & Toubro gave the biggest boosts to the benchmark, while Sun Pharmaceuticals Industries also outperformed.Spicejet climbed as much as 8.2% while InterGlobe Aviation advanced as much as 6.1%; Hindustan Petroleum Corp, Bharat Petroleum Corp and Indian Oil Corp rose at least 1.5% on lower crude. “The sharp fall in crude oil prices and the subsequent rise in the rupee has helped fresh buying in the market,” says Jitendra Panda, managing director at Peerless Securities Ltd in Kolkata. “While Opec tries to manage the output, we believe, oil prices will stabilise between $50-$60 a barrel.”

“Macro factors like benign oil prices and a moderation in pace of inflation may lead to a cut in interest rates in India,” said Chokkalingam G, managing director at Equinomics Research & Advisory in Mumbai.  Meanwhile the rupee and bond prices gained after crude oil prices fell to a 14-month low, easing worries of fiscal slippage and higher inflation. The rupee hit a two-week high and gained 1.57%, its biggest single-day gain in five years, while 10-year bond prices touched a fresh eight-month high. The rupee ended at 70.45 against the dollar, a level last seen on November 30, up 1.57% from Monday’s close of 71.55. The 1.57% gain was the maximum since September 19, 2013. The currency opened at 71.33 and touched a high of 70.85 against the dollar.

The 10-year government bond yield fell 12 basis points to hit an eight-month low of 7.345%, a level last seen on April 9, from its previous close of 7.461%. Bond yields and prices move in opposite directions. Brent crude prices dropped as much as 4% to $57.20 a barrel, its lowest level since October 2017, data compiled by Bloomberg showed. Year-to-date, crude oil prices are down 13.1% — a 33% fall from their 2018 peak of $86.29 per barrel seen on October 3. India’s trade deficit narrowed to $16.7bn in November from $17.1bn a month ago mainly due to a sharp fall in crude oil prices.

“If it is assumed that crude oil prices remain at the current levels and range-bound below $65 a barrel, the trade deficit should not widen significantly,” Care Rating said in a note. Continued buying interest from foreign investors also aided the rupee. FIIs bought $1.76bn in November, and $677mn in equity and debt to date in December. “This is positive for the currency because it is normally believed that FPIs withdraw from EMs during this period to book profits. The fact that the investments are positive is a strength for the balance of payments,” Care Ratings added. Care Ratings expects rupee to be around Rs70-71/$ according to current conditions, and assuming foreign portfolio investments increase and trade deficit remain under control.

Sources and photo-credits: Gulf Times, Bloomberg, Reuters