Indian Indices Open on a Positive Note; Sensex Up Over 250 Points

Wed, 24 Oct 09:30 am

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Asian shares are trading on a positive note today. The Nikkei 225 is up 0.5%, while the Hang Seng is up 0.9%. The Shanghai Composite is trading up by 1.5%.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading up by 253 points (up 0.8%) while the NSE Nifty is trading up by 83 points (up 0.8%). The BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index has opened the day up by 0.9%.

Sectoral indices have opened the day on a positive note with realty stocks and oil & gas stocks witnessing maximum buying interest.

The rupee is trading at 73.25 to the US dollar.

Market participants will be tracking Wipro share price, Bajaj Auto share price, IDFC Bank share price, InterGlobe Aviation share price, Jubilant Foodworks share price, and Indiabulls Real Estate share price as these are among the companies set to announce their quarterly results today.

In the news from the IPO space, Affle India and Dodla dairy have received market regulators go ahead to float their initial share-sale offerings.

Affle India's IPO comprises fresh issue of shares worth Rs 0.9 billion, while Dodla dairy's IPO comprises fresh issue of shares worth Rs 1.5 billion.

With this the total number of companies getting market regulators approval has reached 64 so far this year.

With so many IPOs set to hit the markets, we at Equitymaster believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.

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Moving on to the news from commodity markets, crude oil is witnessing selling pressure today. Oil prices extended their fall from the previous day, when crude slumped as much as 5%, after Saudi Arabia said it would make up for supply disruptions from US sanctions that are targeting Iran's petroleum exports from next month.

Saudi Energy Minister Khalid al-Falih yesterday said that despite expected supply disruptions from the US sanctions against Iran that kick in from November 4, Saudi Arabia would step up to meet any demand that materializes to ensure customers are satisfied.

Losses were also seen after the American Petroleum Institute (API) reported a huge build of 9.88 million barrels of United States crude oil inventories for the week ending October 19. This compared to the analyst expectations of 3.69 million barrels.

Note that 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.

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