Markets rally as falling crude prices ease inflation concerns


NEW DELHI : Steadying oil prices that slipped to levels not seen since the Russia-Ukraine war broke out, helped markets to close with gains of a percent on Thursday. The Sensex closed up 1.12%, while the Nifty closed with gains of 0.99%.

The rebound in equities has also led to the market capitalisation of BSE-listed firms reach an all-time high of 282.66 trillion on Thursday.

This has come against the backdrop of lower crude prices reducing concerns about the Indian economy and inflation and the potentially lower expenditure on imports reducing pressure on the rupee.

The domestic financial market experienced a wave of optimism tracking strength across global markets as oil prices eased, cooling investor concerns about rising inflation, said Vinod Nair, head of research at Geojit Financial Services.

The lower crude prices are being led by the shutdowns in China imposed to contain the spread of coronavirus that are adding to concerns on oil demand at a time China’s demand is already below expectations. The Chinese data is also not encouraging, indicating a slowdown. Outbound shipments in China rose 7.1% year-on-year in August, slowing from an 18% increase in July.

Brent, which closed at $87.30 on Wednesday, was trading at $87.08 to a barrel on Thursday, levels last seen in January 2022.

Demand in Europe and the US has also softened, adding to the weak sentiments on oil demand said, analysts.

The positive for markets is the softening of the US bond yields.

The 10-year US Treasury yield declined to 3.264% from 3.339% on Tuesday. This is favourable for the rupee and reduces risks on foreign investors‘ flow to India.

“The rupee to a dollar spot closed 20 paise lower because of risk on mood in equity markets. The rupee continues to be an outperformer, aided by lower oil prices and foreign portfolio investor inflows” said Anindya Banerjee, vice-president, currency derivatives and interest rate derivatives at Kotak Securities Ltd.

The global backdrop is conducive for dollar strength but that would play out by way of limiting the gains in rupee, rather than pushing it below 80 against the dollar, said Bannerjee. “Therefore, we could see more range-bound and low volatility price action over the near term. Range: 79.30 and 80.10 on spot,” Banerjee said.

Meanwhile, declining bond yields and softer crude prices led to a rebound in global markets, which also remained favourable for Indian markets, while investors shrugged off aggressive rate hike concerns.

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