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Sensex Ends 174 Points Lower; Rupee Hits Lifetime Low of 74.27 Against USD
Tue, 9 Oct Closing | Monish Vora, TM Team

After trading on a volatile note throughout the day, share markets in India witnessed selling pressure during the closing hours and ended the day in red. All sectoral indices traded in red, with stocks in the energy sector and consumer durables sector leading the losses.

At the closing bell, the BSE Sensex stood lower by 174 points (down 0.5%) and the NSE Nifty closed down by 47 points (down 0.5%). The BSE Mid Cap index ended the day down 0.1%, while the BSE Small Cap index ended the day down by 0.5%.

The rupee was trading at Rs 72.32 against the US$ in the afternoon session.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was down by 0.1% and the Shanghai Composite was up by 0.2%. The Nikkei 225 was down by 1.3%. Meanwhile, European markets were also trading on a negative note. The FTSE 100 was down by 0.4%. The DAX was down by 0.6%, while the CAC 40 was down by 0.4%

In the news from currency markets, the rupee hit a fresh record low of 74.28 against the US dollar today.

The selling pressure came on the back of rising crude oil prices and strengthening of the US dollar overseas.

Apart from the above, foreign fund flows also weighed on the rupee.

Note that the rupee has been witnessing selling pressure against the US dollar since the start of this calendar year.

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

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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. The depreciation of the rupee will also add to crude oil's rising cost.

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.

Ankit Shah has explained how the depreciation in rupee is linked to foreign investor outflows and forex reserves in one of his editions of Equitymaster Insider. You can read the entire article here (requires subscription).

Also, here's what we wrote about the falling rupee and its repercussions in a recent edition of The 5 Minute WrapUp...

  • The rupee is under pressure due to a strong dollar and high oil prices. Similarly, the spill-over from the emerging-market turmoil in Argentina and Turkey is weighing on the rupee.

    The falling rupee is also triggering sales of bonds and stocks, which in turn is further pressuring the rupee.

    Nevertheless, last week, the government announced several measures. This includes cutting down non-necessary imports, removal of withholding tax on rupee-denominated bonds, and easing overseas borrowing norms.

    That said, in the near term, the rupee being under pressure could benefit export-oriented businesses.

Kunal Thanvi's recent Smart Money Secrets recommendation benefits from the rupee depreciation as the company derives around 65% of the revenue from exports. The icing on the cake is the company's focused entry into the B2C segment, which provides it a long runway for future growth.

If you're a Smart Money Secrets subscriber, read the detailed report here.

If not... you can get the report by signing up here.

In the news from commodity markets, crude oil was witnessing buying interest today as more evidence emerged that crude exports from Iran, OPEC's third-largest producer, are declining in the run-up to the re-imposition of US sanctions.

Gains were also seen as a hurricane moved across the Gulf of Mexico.

As per the data released, Iran's crude exports fell further in the first week of October as buyers are seeking alternatives ahead of the start of the US sanctions on November 4 and creating a challenge to other OPEC oil producers as they seek to cover the shortfall.

Market participants are worried that Iranian sanctions could severely undersupply the oil market in 2018 and that will mean further rise in crude oil prices.

Speaking of crude oil, oil prices have climbed steadily this year, helped by rising demand. However, rising crude oil prices doesn't bode well for the Indian economy, as it not only affects fuel prices, but also has many other repercussions on the macroeconomic level.

They can be a big worry for the Modi government as well as it has been a big beneficiary of lower crude oil prices.

Apart from that, what does rising crude oil prices mean for stock markets?

Richa Agarwal, editor of Hidden Treasure, tracks the oil and gas sector very closely. She believes the rise in crude oil prices is a bearish sign for stock markets globally. At the same time, any market correction, will throw up interesting buying opportunities in small-cap stocks.

This is what she wrote...

  • After hitting a low of US$ 30 per barrel in January 2016, prices have more than doubled this year.

    While the Hidden Treasure team looks for long-term wealth creators, such macro situations can help to recommend such stocks at a bargain. The ones who keeps calm, when everyone else is losing their heads, will gain the most when the tide turns.

Also, it's interesting to note that whenever oil prices have surpassed US$ 100/barrel, they didn't stay there for very long. In technical term, it is sort of 'resistance level'.

Resistance Kicks in Once Crude Touches US$ 100/barrel

This is what we wrote about this in one of the editions of The 5 Minute WrapUp...

  • Oil prices have collapsed thrice because of demand destruction: in 1979, 2008, and 2014.

    In 1979, the trigger for oil price increase was the Iranian Revolution and the Iran-Iraq war. Due to this, oil prices rose from US$ 50/barrel to above US$ 100/barrel between January 1979 and April 1981.

    Then, new production from the North Sea, Mexico, Alaska, and Siberia flooded the market. By March 1986, prices had fallen to US$ 27/barrel.

    In 2008, when oil touched US$ 150/barrel, it was quickly followed by the financial crisis and recession.

    Then, between 2011 and 2014, when oil was above of US$ 100/barrel, several years of triple-digit oil prices led to a near doubling of shale production in the US, a volume that helped trigger the crash in 2014.

In fact, as per the media reports, even Saudi officials think US$ 60 is a reasonable price for oil in the long term.

It would be interesting to see how Iranian sanctions will influence crude oil prices. Meanwhile, we will keep you posted on all the updates from this space.

In the news from steel sector, Steel Authority of India Ltd (SAIL) share price was in focus today. The stock of the company witnessed selling pressure on reports of a gas pipeline explosion in its Bhilai plant.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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