Rupee, Sensex feel the heat as oil surges above $75 mark

Global oil benchmark Brent breached the $75 per barrel level for the first time in 2019 following stricter US sanctions on Iran oil. Saudi Arabia’s comments that it sees no immediate need for intervention in the oil market also fuelled the rally even as the US data showed larger-than-expected increase in oil stockpiles.

“Rising crude and dollar Index weighed on the rupee. Besides stronger crude oil prices, weakness in Asian currencies weighed on the rupee,” V K Sharma, head PCG & capital markets strategy, HDFC Securities, said.

A 10 per cent spike in crude prices can result in a 0.40 per cent widening of the current account deficit (CAD), which could result into a 3-4 per cent depreciation in the rupee and also push up inflation by 0.24 per cent, Sharma said. It could also impact foreign portfolio investments which have of late come down, analysts said.

“The currency will be the first point of contact as the trade deficit and CAD will widen. FII, FDI etc would need to balance out this deficit or else the balance of payments would be under pressure. The sharp increase in import bill will hence tend to put pressure on the rupee. The rupee will be under pressure on account of both sentiment which will drive the currency in the short run and dollar outflows which will be the natural outcome of higher oil prices,” Care Ratings said in a report.

A sustained increase in the price in the range of $70-75 per barrel or higher can move the rupee down by 3-4 per cent on an annual basis given that the dollar has already started strengthening in the world market, it said. Besides, there will be pressure on the RBI to tighten the interest rate policy to tackle inflation.

Vinod Nair, head of research, Geojit Financial Services, said, “Markets failed to maintain the opening gains due to surge in oil prices and concern on slowdown in Chinese central bank’s stimulus packages. Consolidation was broad based with PSU banks and metals underperforming. The sentiment was further impacted due to rise in India 10 year yield and depreciation in rupee.”

After starting on a positive note, the indices succumbed to a sudden sell-off in the last half-hour of trade amid expiry of April futures and options contracts. Maruti Suzuki tumbled 2.23 per cent after the country’s largest car maker reported a 4.6 per cent decline in net profit.

“Higher oil prices can have a negative impact on the current account deficit (CAD), the rupee, inflation and does not augur well for the domestic markets. General elections will keep the markets buzzing in the near term. “However, the major factor that will decide the direction of the market is Q4FY19 earnings. A revival in earnings will help the markets sustain the current valuation,” said Hemang Jani, head – advisory, Sharekhan by BNP Paribas.

Sectorally, the BSE telecom index saw the biggest losses, falling 2.26 per cent; followed by metal, bankex, finance, auto, energy and teck. In the broader markets, the BSE midcap and smallcap indices lost up to 0.58 per cent. According to Jayant Manglik, president — retail Distribution, Religare Broking, markets turned volatile on the F&O expiry day and settled with a cut of over half a per cent.

“This volatility indicates caution among the participants and it’s not going to subside soon. Mixed earnings announcements combined with weak global cues are currently weighing on the sentiment. Besides, the recent surge in the crude has further deteriorated the condition,” Manglik said.

Brent crude futures were at $75.24 by 1156 GMT, up 67 cents. They earlier hit a session high of $75.60, their strongest since October 31. US West Texas Intermediate crude was at $66.14 per barrel, up 25 cents, according to a Reuters report.