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A rally in the rupee has sparked renewed interest in India’s equity market. On Thursday, as the rupee touched a three-month high of 69.88 against the dollar, key benchmark indices Sensex and Nifty rose 1.2 per cent.
The Sensex gained 453 points to close at 36,170 while the Nifty rose 129.85 points to 10,858. Both the indices have gained nearly 10 per cent over the past month from their earlier lows, while the rupee’s closing at 69.85 today marked a three-month high.
Capital outflow fears recede
A crash in global crude oil prices has been the chief reason for the strength in the rupee and the stock market, equity experts said. It had been rather worrisome when the rupee touched 75 against the dollar and crude traded at $85 per barrel, sparking fears of capital outflows due to potential bulging of the current account deficit (CAD).
But India’s $75-billion currency swap agreement with Japan calmed frayed nerves in the financial markets, experts said. This was followed by a fall in crude prices after a US’ waiver allowed India to continue buying oil from Iran despite sanctions.
Today, Brent crude was trading at $59 a barrel while WTI crude in the US traded at $50. Both are down around 30 per cent from their recent peaks.
“The threat of rupee depreciation seems no more on investors’ mind and the fall in crude has curtailed the inflationary pressure to bring back positive sentiment in the stock markets,” said Deven Choksey, founder promoter, KR Choksey Investment Managers. “An overall stability will attract fresh funds.”
Impact on inflation
The sharp slump in crude prices will lower inflation and help ease pressure on the RBI to raise interest rates.
A dovish stand by US Fed Chairman Jerome Powell — that interest rates may not raise at a fast pace — boosted stocks around the world. In India, too, government and RBI measures have eased the liquidity situation.
“The liquidity in the markets has improved, the risk aversion due to CP (commercial paper) rollover in November has abated,” said Arun Thukral, MD and CEO, Axis Securities. “While CP rollovers are happening, at the same time, money is not cheap for NBFCs compared to the last couple of years.”
“In the current macro scenario, with the cooling of crude oil prices and subsequent rupee stabilisation, it will be a good time for the RBI to recoup reserves and pump in liquidity,” he added.
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