CRUDE AND POLITICS – BIGGEST WORRIES OF MARKET

By Ruma Dubey

Crude is the Satan in Modi’s paradise. For four years, its price was under control and this sweetened the honeymoon period further. But now, the screws are getting tightened and reality is hitting hard.

The markets are in a lackluster kind of mood, veering more towards negative. There is no long term view currently; punters are taking a day-to-day view and that’s how the market is moving, explaining the volatility.

The drama in Karnataka has got the market worried; after UP and Goa, the way things turned out in this Southern state has made things uncertain – the markets were certain that Modi will come back with a bang in 2019 but now with oppositions teaming up, becoming a new group of ‘frenemies’ to topple BJP, one cannot help but wonder about how things would pan out in 2019. Will the same teaming up happen? Most are certain that a clean sweep like five years ago for BJP looks difficult though it may emerge as the largest single majority party. But with this teaming up, a hotchpotch Govt at the center is not what the market wants. Was Karnataka the trailer to 2019 elections – that in short is the biggest worry.

This plus the rising price of crude has really got the markets down. Crude oil crossed the $80/barrel on Thursday and in the domestic market, petrol and diesel hit a record high today. Petrol is at a 56-month high at Rs.76.24/litre and diesel is at Rs.67.82/litre. There is news doing the rounds of the Govt reducing duty on fuel to bring down the prices but for now, this is a worry.

The rising crude has a direct impact on the Indian rupee vis-à-vis the US dollar; the rupee is depreciating and this increases selling pressure the FIIs – they have already sold shares worth Rs.2700 crore in May v/s Rs.6,200 crore in April.

Also the worry on the horizon is the upcoming RBI meet in June – a rate hike is very much anticipated. Maybe the MPC will hold on till onset of monsoon but now or later, rate hike, some say even two in 2018 is a certainty – at least on economic grounds; politically what happens, no can predict that!

These are the factors weighing on the market and will continue do to so till the end of the month. The trigger now will be monsoon – the onset of monsoon could spark a rally as a good monsoon means a bountiful economy for a country whose 60% population is directly or indirectly dependent on agriculture.

This would be the third straight year of a good monsoon and if things really do pan out as predicted by the IMD, a robust economy can mitigate the ill effects of a rising crude.  

Also on the positive side, even if FIIs are selling domestic institutions are bigger buyers and that should help sustain the balance.

Yes, things as of now look at big dicey, especially on the macroeconomic front. But when sentiments are down, every good news also looks bad. Let’s wait and see how the Govt handles the rising fuel price…

In the short term, brace for volatility and pray that monsoon comes calling at the right time and in the right quantity, at the right places!

Food for thought - worry is like a rocking chair - it gives you something to do but gets you nowhere.