Rupee crash, inflation haunt markets

Wed, 14 Dec Closing

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With the rupee breaching new lows every day, the Indian stock markets are also not faring much better. The benchmark indices closed weak today after seeing a rare gain yesterday. Sectoral indices across the board mainly ended lower with realty and metals leading the pack of losers. Only FMCG stocks managed to see some gains. While the BSE-Sensex ended lower by around 121 points, losses on the NSE-Nifty came in at 37 points. The smaller indices were slightly worse off. The BSE Mid Cap closed 1% lower while the BSE Small Cap was 0.8% down.

Other major Asian indices closed negative whereas Europe is also trading mostly in the red currently. The rupee was trading at Rs 53.69 to the dollar at the time of writing.

The Reserve Bank of India (RBI) has its work cut out for it at this week's policy meet. The plunging rupee is spooking India Inc. and they are begging for action from the central bank. Inflation continues to remain sticky and growth in the economy has taken a hit.

Wholesale price inflation continues to remain high even in the fag end of the year. The wholesale price index (WPI) rose 9.11% from a year earlier. It saw a slight slowdown from the 9.73% rise seen in October. With prices remaining sticky, it leads to fears that the RBI may keep a status quo on interest rates. This is despite slowing GDP growth and tumbling IIP numbers. The slight reduction in inflation rates from October was the result of a sharp drop in food inflation. However pricing pressures in fuel and manufacturing increased. Food inflation fell to 8.54% in November from more than 11% in October. Fuel inflation increased to 15.48% from 14.79% and manufacturing inflation increased marginally, to 7.7% from 7.66%.

If state run oil companies like Hindustan Petroleum Corporation limited (HPCL), Bharat Petroleum corporation Limited (BPCL) and Indian Oil Corporation (IOC) have their way, petrol prices may be hiked by Rs 0.65 per litre this week. The rupee has fallen to an all time low of Rs 53.8 per US dollar, and is breaching new lows almost every day. This has led to an increase in costs of oil imports. Earlier this quarter state-owned oil firms cut petrol prices twice after international crude oil prices eased. Companies reduced petrol prices by Rs 2.22 per litre, on November 16 and followed this with a Rs 0.78 per litre cut from December 1. However a hike in prices after 2 rate cuts may not go down very well. Thus these companies have may have to bear the under recoveries themselves for some more time.