Terrorism reared its ugly head once again in Kashmir after a long gap. A Fidayeen (suicide) Blast killed more than 40 CRPF personnel in Kashmir; with many more critically injured. This was one of the worst terrorist attacks in Kashmir since 2001 and could further hamper diplomatic relations between India and Pakistan. The terrorist organization, Jaish-e-Mohammed has claimed responsibility for the attack in Kashmir. The details are still awaited but it appears to be an intelligence lapse considering that a truck loaded with nearly 100 KG of explosives could be driven into an army convoy.
The weak inflation story continues and after CPI it is the turn of WPI. Wholesale Price Index (WPI) fell to a 10-month low of 2.76%; coming in the immediate aftermath of the CPI inflation coming in at an 18-month low of 2.05%. WPI reflects producer inflation and hence cost-push inflation tends to be more vulnerable to the WPI number. The food basket as a whole showed 2.34% inflation compared to negative inflation of (-0.07%) in the previous month. Fuel and power WPI also fell sharply on the back of weak crude prices and could make a strong base case for another round of rate cut by the RBI.
Pressure on the Nifty and the Sensex continued on Thursday. Indian Markets correct for the sixth consecutive trading session as the Nifty closed below the psychological 10,750 marks and the Sensex already lost over 1200 points since previous Thursday. The big loser today was downstream oil companies after concerns of oil subsidy came back to haunt the oil companies closer to elections. The A/D ratio was also unfavorable at 21:29. Even metal and IT came under pressure on Thursday. Global and domestic uncertain has weighed on markets even as FIIs have been sellers.
The fund flow data for the month of January showed some clear sectoral trends. Mutual funds sector preferences in January 2019 showed a penchant to sell out of private banks and NBFCs. The selling in financials was sharp wherever there was supposed to be an exposure to IL&FS or any of the beleaguered financial stocks. Consumption stocks continued to attract attention. Interestingly, mutual funds were concerted buyers in oil marketing companies (OMCs). The OMC attraction can perhaps be explained by reasonable valuations and attractive dividend yields on these stocks.
After a long gap, the crude oil prices are back to haunt the Indian markets. Brent Crude shot up 100 bps to $64.24/bbl on supply and demand factors. The pressure on Brent crude was visible after the Venezuelan sanctions started to pinch. The US and EU have imposed sanctions on Venezuela to impel the current president, Maduro, to demit office. Venezuela is India’s third-largest crude supplier. Saudi Arabia has agreed to cut supply further if required and there was also hope that the US-China trade talks would see a positive culmination. A revival in demand would be the key to widening the gap between daily demand and supply. Currently, the demand-supply equation for oil is almost matched and Venezuela sanctions and Saudi cuts could provide the ammunition for oil prices to go up higher.
Indian Rupee weakened by another 50 bps at 71.158/$ on Thursday. The rupee weakness was largely driven by rising crude prices which hardened on the back of the Venezuelan sanctions and the Saudi pledge to cut crude supplies further if required. With the trade talks expected to bear fruit later this week, the oil markets are also betting on a revival in oil demand. Reuters had projected rupee to get closer to 74/$ during this year. The rupee has normally seen to be vulnerable whenever the crude prices become dearer as rising trade deficit puts tremendous pressure on the INR.
