After January’s panic sell-off which saw the Sensex tumble below the 15,000 mark, the stock market seemed to be recovering modestly on the back of an above-average showing by corporate India. The market rebounded to the 17,000-mark in April. But no sooner than the market showed signs of stabilising, another bolt, this time in the form of high global oil prices, hit investors.
Oil prices zoomed past the $130 mark in the first week of May, which was a cue for the Sensex to shift into reverse gear; the 30-share index has since May 5 lost a little over 1,086 points to close at 16,348.50, down 6.23 per cent, at the time of writing. As fears of a global slowdown now loom large over the global markets, the stock market is again back in a bear grip.
Oil has been playing a spoilsport in the global equity markets. With global brokerages increasing their forecast for oil prices— Goldman Sachs reckons crude could hit $200 per barrel in the next 24 months—stock markets are expected to remain wobbly for the next few months. But the rising oil prices have shifted the focus from microanalysis to the macroeconomic fundamentals of the economy, which is in a precarious condition. Says Manish Sonthalia, Senior VP, Research and Strategy, Motilal Oswal Securities: “Oil is a real big worry for the markets because of which the government’s balance sheet is getting worse. Institutional players are taking this seriously.”
IIFL, the institutional arm of India Infoline, says that at the current price of oil, India’s current account deficit could more than triple in 2008-09 to $40 billion (over 3 per cent of GDP).
Another worry high on the list has been a weakening rupee, which has fallen to 42.50 per dollar. This makes imports more expensive and further contributes to the current account deficit, weakening India’s macroeconomic fundamentals. And yet another macroeconomic factor, inflation, has soared to a high of 7.83 per cent.