Low inflation led to a sharp recovery in the stock market indices on Tuesday. Nifty and Sensex recovered their 2019 losses in a single day as the technology stocks led the rally. Apart from the weak rupee, decent numbers from the technology companies also helped matters. But the big trigger for the markets came from the 2.19% CPI inflation which led to hopes of possible rate cuts by the RBI when it announces the next credit policy in February. After the China trade slowdown, most traders are also expecting the big Chinese stimulus to give a boost to world demand.
Downstream oil companies are in the market to raise funds. Indian Oil is expected to raise $900 million for working capital via overseas bonds. According to a report, the $900 million bond issue is likely to carry a coupon rate of 4.75%. The notes will mature in 2024 and the principal repayment and the interest payments will be done in US dollars. That will expose IOCL to currency risk in the event of depreciation of the rupee. Bonds are likely to be listed on the Singapore Stock Exchange (SGX). Other downstream oil companies are also expected to follow suit.
With a Chinese stimulus expected and the rupee weakening beyond the 71/$ mark, the NSE Technology Index spurted sharply by 3.6% on Tuesday. While the initial trigger for the technology rally came from expectation of a Wipro bonus, the buying gradually spread across all the technology stocks. Five of the top 10 gainers on the Nifty were technology stocks. The weakening of the rupee beyond Rs.71/$ also contributed to the tech rally. Globally, tech stocks are heavily betting on the China stimulus package. Investors are also looking at tech stocks as a safe haven to park money in these market conditions.
There was some good news on the trade deficit front for India. December trade deficit narrowed to $13.08 billion. According to a report, the sharp fall in the trade deficit was driven by a 24% fall in gold imports during the month. However, the disappointment was that exports remained flat during the month. Total annual exports for 2018-19, according to Reuters, is likely to end up at around $300 billion which is the same level as it was in fiscal year 2013-14. That may be the worry for the government as the exports have not picked up despite aggressive measures in this direction like “Make in India”.
The currency and the oil continued to be the key drives on Tuesday. Rupee breached 71/$ mark on reported outflows of dollars. The sharp fall in the INR in the last two days was marked with chunky outflows of dollars. The dollar outflows began soon after the weak Chinese trade data came out. Currency traders are expecting the Yuan to weaken and that could rub off on India too. In the meanwhile, Brent crude prices bounced 2% on Tuesday on supply cut hopes. OPEC and Russia cut their supplies and indicated their preparedness for more cuts. According to a report, lower US oil stocks also contributed to rising prices of crude. However, the Chinese slowdown continues to be an overhang for global oil prices as it could lead to demand compression. Brent was quoting above the $60/bbl mark.
Finally, there may be some resolution to the Jet story on Wednesday when the Jet stakeholders meet over the Restructuring Plan. The stakeholders meeting will be led by SBI, which has the largest exposure to Jet Airways. The proposals for consideration include Etihad raising its stake to 49% and Goyal cutting his stake to 22% and ceding management control. As per Bloomberg Quint report, SBI will work out a restructuring of loans for Jet subject to commitments from Etihad. However, the fundamental question over how Jet will maintain the spreads between CASK and RASK still remains unanswered.
