Markets rally as Oil prices cool down to $100

Foreign portfolio investors turned net buyers in India’s cash equity markets for the first time after 21 trading sessions, pushing key market indices up.

For nearly three months now, FPIs have been on a selling spree. On Wednesday, FPIs were net buyers of ₹1,822 crore in the index futures segment and ₹1,314 crore in the stock futures segment, as per exchange data. Benchmark indices Sensex and Nifty gained 1.86 per cent and 1.87 per cent, respectively. Sensex rose by 1,039 points to close at 56816. Nifty was up 312 points at 16975.

Rupee surges 35 paise

The rupee ( also appreciated by about 35 paise on Wednesday on account of the US dollar depreciating against major currencies, lower crude oil prices, possibility that Russia-Ukraine talks may make some headway and buoyancy in the equity market.  The rupee closed at 76.2650 per USD against the previous close of 76.61. 

“The possibility of US Fed cutting the rate by only 25 basis points (bps) against the expected 50 basis points in the backdrop of the Russia-Ukraine war weakened the dollar. This, in turn, strengthened major currencies,” said the Chief Dealer of a private sector bank. 

Anindya Banerjee, DVP, Kotak Securities, said that lower oil prices and rebound in Chinese stocks caused long liquidations in the USD-INR pair.  

“Rupee has been an outperformer over the past one week thanks to lower oil prices. Tonight’s Fed meeting will be keenly watched. Fed is widely expected to hike by 25 bps, which should be non-eventful.  

“However, if Fed drops a hint of 50 bps hike in future meetings or talks about balance sheet run off, then it can be positive for USD-INR. We expect a range of 75.70-76.70 over the near term,” he said. 

G-Sec prices rally

Meanwhile, Government Securities (G-Secs) prices rallied on thaw in crude oil prices and an appreciating rupee. 

Price of the benchmark 10-year G-Sec (coupon rate: 6.54 per cent) was up 23 paise, closing at ₹98.23 (previous close: ₹ 98), with its yield declining abut 3 basis points at 6.7879 per cent (6.8207 per cent). With fears of direct intervention of other European nations and the US into the Russia-Ukraine war ebbing, investor interest has returned to the stock markets globally. India’s market rally for the past couple of days has been in line with US and Europe markets.

Market players are eyeing the US Federal Reserve Meeting and a likely short squeeze in the US stock markets on account of Quadruple witching, when four different sets of futures and options expire on the same day. Analysts are expecting the Fed to hold back on its aggressive rate hikes in the wake of the Russia-Ukraine conflict.

“Since India depends heavily on imported oil, equity markets here were on a crash course as global crude oil prices skyrocketed. But that scenario has changed and nobody is expecting the crude oil prices to make a new high in near future. This time Quadruple witching in the US could lead to a massive rally in the global equity markets. In the US, the majority of the positions are on the short side currently and on March 18 when four different contract expiry converg, it could lead to a short squeeze and rally. If US markets rise big time, the rest of the world will simply follow,” said Kishor Ostwal, MD CNI Global Research.

During March so far, FPIs have net sold stocks worth ₹44,417 crore in the cash segment, ₹3,438 crore in the index futures segment and ₹2,676 crore in the stock futures segment, exchange data show. Despite the record FPI selling, the Nifty and Sensex have managed to gain nearly 7 per cent from the recent low levels made this month.

News reports suggest that Russian attacks on Ukraine have intensified as none of the western countries have come to directly fight besides Ukraine. US and major European countries have imposed heavy sanctions on Russia and even cut them off from the global banking network for payments. But markets have got respite as global Brent Crude prices, which had touched $130 per barrel have cooled down to $100. The US WTI crude oil prices are down to $ 97 per barrel.

Analysts say the stock markets have displayed tremendous resilience in the past couple of months despite the heavy selling by FPIs. Buying support to the markets by domestic institutional investors and even retail investors has helped the markets. Exchange data show that DIIs have been bet buyers worth ₹32,292 crore in the cash markets in March so far. They have absorbed much of FPI selling. Markets in the Europe and the US were up in the range of 1-2.5 per cent. 

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