Markets rally as falling crude prices ease inflation fears

NEW DELHI : Stability in oil prices, which slipped to levels not seen since the outbreak of the Russian-Ukrainian war, helped markets close with one percent gains on Thursday. The Sensex closed up 1.12%, while the Nifty closed with gains of 0.99%.

The rebound in equities also pushed the market capitalization of BSE-listed companies to a record high of 282.66 trillion on Thursday.

This came amid falling crude prices reducing concerns over the Indian economy and inflation and potential lower import spending reducing pressure on the rupiah.

The domestic financial market saw a wave of optimism on the strength of global markets as oil prices eased, calming investor concerns about rising inflation, said Vinod Nair, head of research. at Geojit Financial Services.

The drop in crude prices is due to shutdowns imposed in China to contain the spread of the coronavirus which add to concerns about oil demand at a time when Chinese demand is already below expectations. Chinese data is also not encouraging, indicating a slowdown. Shipments to China rose 7.1% year-on-year in August, compared to an 18% increase in July.

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

Demand in Europe and the United States also weakened, adding to weak oil demand sentiment, analysts said.

The silver lining for the markets is the decline in US bond yields.

The 10-year US Treasury yield fell to 3.264% from 3.339% on Tuesday. This is favorable to the rupee and reduces the risks on the flow of foreign investors to India.

“The rupee against the dollar closed down 20 paise on risk on the stock market mood. The rupee continues to outperform, helped by lower oil prices and inflows from foreign portfolio investors” , said Anindya Banerjee, vice president, foreign exchange derivatives and interest rate derivatives at Kotak Securities Ltd.

The global backdrop is supportive of dollar strength, but that would result in limiting rupee gains, rather than pushing it below 80 against the dollar, Bannerjee said. “Therefore, we could see more limited, low volatility price action in the near term. Range: 79.30 and 80.10 on the spot,” Banerjee said.

Meanwhile, falling bond yields and lower crude prices led global markets to rebound, which also remained supportive of Indian markets, as investors shrugged off aggressive rate hike fears.

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