A Thursday thrashing from shares, rupee, oil

In what could be considered the worst day for the Indian economy, the rupee crashed to an all-time low of 73.81 against the US dollar intraday, Brent crude rose to a four-year high of $86 a barrel and the Sensex recorded its second biggest single-day fall of the year at 806 points.

The rupee collapsed to a fresh low during the day as global oil prices continued to rise, deepening concerns about the current account deficit and capital outflows. Sharp volatility in the equity markets and a record FII outflow aided the rupee crash.

Consistent dollar demand from importers, mainly oil refiners, following higher crude oil prices, kept the rupee under pressure, resulting in a fall of 46 paise.

According to economists, the rupee slide is aided by the credit crisis and the external repayment obligations. “The external repayment obligation is almost 60% of India’s foreign exchange reserve. So, that puts a stress on exchange rates,” Govind Rao, Member, 14th Finance Commission, told DH.

The rupee is likely to test a level of 75 against the dollar if Brent crude rises to an 88-90 level, according to a poll conducted by DH.

The CEO of a top mutual fund company, who did not wish to be named, said that it is the government’s callous approach that has led to the current crisis. “It looks like a new ‘Quit India Movement’ is going on in markets with FPIs and FIIs withdrawing a record amount of money in the last two decades. That will put added pressure on the rupee,” the CEO said.

Meanwhile, state-owned oil marketing companies have been allowed to raise $10 billion from overseas markets to meet their working capital needs, even as Brent crude prices are showing an upward trend.

Meanwhile, markets witnessed a bloodbath on a treacherous Thursday with Sensex logging its second biggest fall of the year.

The S&P BSE Sensex ended the day’s trading at 35,169, down 806.47 points or 2.24% lower over Wednesday’s closing of 35,976 points. The Nifty 50 index ended the day’s trading at 10,599 points, showing a decline of 259 points.

Prior to this, on the Budget Day (February 2, 2018) the benchmark index witnessed a fall of 839.91 points. It’s only the second instance in the current financial year, that the Sensex saw a decline in excess of 800 points. In the current year, the markets have witnessed a fall of over 500 points eight times, with five of them happening in the past 30 days alone.

“Falling rupee weighed heavy on the sentiment which further weakened today to new lows of 73.81 along with crude prices touching the $86 mark. The RBI policy tomorrow, where another 25 basis points rate hike is expected, has added fuel to the negative sentiment,” Yogesh Mehta, VP-Retail Research, Motilal Oswal Financial Services said.

The stress of rising Brent prices reflected on the stocks of Indian oil companies as well. Hindustan Petroleum Corporation saw its shares tank by 12.23% to close at Rs 220.60, while Indian Oil Corporation saw its stocks dip by 10.57% to close at Rs 140.85.

Some analysts also blame India’s growing current account deficit for the present fiasco. “Amongst Asian markets, India is the highest importer of crude after China. Hence the impact on India’s trade deficit is very high. FPIs are selling in emerging markets which is visible in India also,” Rusmik Oza, senior VP, Head of Fundamental Research, Kotak Securities said.