Declining Rupee and Rising Crude Prices Impact on Indian Stock Market

Indian Rupee has breached the 67 mark against dollar after 15 months due to widening gap and due to increase in the global crude prices. To prevent further fall in the rupee, Reserve Bank of India has sold approximately $800 million collectively on the spot and exchange traded futures markets.

IT companies like Infosys, TCS and HCL Technologies are expected to benefit the most due to the larger US exposures and dollar billing. Natco Pharma, Aurobindo Pharma will also get benefit from weaker rupee and stronger dollar.

Meanwhile, global crude prices reached their highest point in more than three years as Brent crude futures reached $75.18 a barrel, due to tight global supplies and  new US sanctions against Iran.

President Trump is terminating the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA) with Iran and re-imposing sanctions lifted under the deal. https://t.co/ACJODlAw0p

— The White House (@WhiteHouse) May 8, 2018

Effect on Indian Stock Market

Rise in crude price will have an adverse effect on the stock market and will affect sectors like Auto, Refining, Airline, Paints, cement, logistics, construction materials, tyres, footwear, lubricants etc as crude or its derivatives are the major input costs. As a result of this, the margins of the companies will be affected and could affect more than one or two quarters. Additionally, fuel and transportation costs will definitely rise across industries with the rise in fuel prices.

However, upstream companies such as ONGC and Oil India generally get benefit due to rise in oil prices but this sector is very regulated. The market gets worried as the government may ask the public sector oil-major to share some burden of rising oil prices, despite the dismantling of administered pricing mechanism. On the other hand, bank major SBI is also negative about it as the rise in oil price will put pressure on re-capitalisation proposal.

Furthermore, the weak rupee could benefit export-oriented companies like textiles, and the information technology industry, but it will hurt the companies that import a major part of their raw materials or components. Textiles (for eg. Arvind Mills) is a net exporter and gets most of the payment in dollar terms.

Future Path of Indian Rupee

The rupee is expected to trade in the range of 66.73-67.50 against the US dollar in the short term. On the domestic front the key trigger for the stock market would be the Karnataka polls on Saturday, whose results will be out on next Tuesday and will affect the recourse of the market.