Of Rising Crude Oil Prices, Depreciating Rupee, and Top Cues in Focus Today

Thu, 19 Apr Pre-Open

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Share markets in India closed marginally lower yesterday. Gains were largely seen in the FMCG sector and realty sector.

At the closing bell yesterday, the BSE Sensex stood lower by 63 points (down 0.2%) and the NSE Nifty closed down by 23 points (down 0.2%). The BSE Mid Cap index was down 0.1%, while the BSE Small Cap index was down by 0.4%.

Top Stocks in Focus Today

Axis Bank share price and Bharti Airtel share price will be in focus today as the Aadhar authority yesterday imposed multiple fines on the bank and the telecom major. The Unique Identification Authority of India (UIDAI) imposed fines (disincentives) worth millions on telecom major Bharti Airtel and Axis Bank for breaching terms and conditions attached to Aadhaar authentication.

Vedanta share price and Electrosteel Steels share price will be in focus today as the National Company Law Tribunal's (NCLT) Kolkata bench yesterday approved a Rs 53 billion resolution plan for Electrosteel Steels.

Tata Steel Raises US$ 1.9 bn through Syndicated Loans

In one of the largest debt raising exercises this year, Tata Steel raised US$1.9 billion through syndicated loans for its Singapore units Nat Steel Asia and TS Global to refinance existing high-cost debt.

The move is a part of a mega financial reengineering exercise undertaken by the country's largest steel maker to streamline its international balance sheet.

The loan is in two tranches - US$1.29 billion and US$469 million.

Facilities are priced at about 200 bps above Libor and will have about six-year maturities. The fresh debt will likely have a 50-basis-point advantage over existing interest rates. About 20 banks, including JP Morgan, Citigroup, Bank of America-Merrill Lynch, State Bank of India, Axis Bank and ICICI Bank, are part of the lending syndicate.

As of September 30, Tata Steel's gross debt stood at Rs 902 billion.

US Inventory Drawdown Aid Crude Oil Prices

Crude oil is witnessing buying interest this week. Gains are seen on the back of a reported fall in US crude inventories and the ongoing risk of supply disruptions.

Last week too, crude oil was headed for its biggest weekly advance in more than eight months on speculation that tensions in the Middle East may lead to supply disruptions, reinforcing a buy call on commodities by Goldman Sachs Group Inc.

The risk of conflict in Syria, as well as ongoing tensions between Saudi Arabia and Iranian-backed rebels in Yemen, has raised concerns over supply security in the energy-rich region.

While OPEC said its output last month fell to the lowest in a year, with worldwide inventories set to decline significantly later this year, the International Energy Agency (IEA) sees a second wave of shale revolution in the US.

How this pans out remains to be seen. We will keep you updated on all the developments from this space.

Note that crude oil prices have been witnessing a rising trend of late. However, this is not good news from India's perspective.

As we wrote in one of the editions of The 5 Minute WrapUp...

• Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.
  
  Secondly, the impact on inflation needs to be monitored. This narrowing the central bank's scope for further rate cuts.
  
  Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.

You can read the entire article here.

Rupee Witnesses Selling Pressure

In the news from currency markets, the rupee hit a fresh 7-month low against the dollar yesterday. This was seen on the back of worsening trade scenario and geopolitical tensions.

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So a fall in rupee leads to a consequent rise in the import bill.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.

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