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After opening the day on a flat note, the Indian share markets registered marginal gains and continued to trade near the dotted line. Sectoral indices are trading on a positive note with stocks in the healthcare sector and telecom sector witnessing maximum buying interest.
The BSE Sensex is trading up 67 points (up 0.3%) and the NSE Nifty is trading up 28 points (up 0.4%). The BSE Mid Cap index is trading up by 1.1%, while the BSE Small Cap index is trading up by 1.2%. The rupee is trading at 68.23 to the US$.
Moving on to the news from the commodity markets... Crude oil is witnessing buying interest today. This is seen as Venezuela has announced that it will cut 95,000 barrels per day of oil production in the New Year. The move is aligned with the OPEC deal to reduce global output and strengthen crude oil prices.
The pact by the Organisation of the Petroleum Exporting Countries (OPEC) and several non-OPEC producers to lower production by almost 1.8 million barrels per day starts from 1st January.
The above pact is agreed in order to ease the global supply glut and bring in a revival in crude oil prices. And from what it seems, a revival is around the corner. If that happens to be the case, however, India would be at the losing end in the settlement.
Ever since June 2014, the Modi government has received a huge tailwind from falling crude prices. The fall in crude oil prices helped the government keep the fiscal deficit and inflation level in check. Also, the government captured most of the gain by raising excise duties on petroleum products multiple times. The petroleum subsidy fell from Rs 968.8 billion in 2012-2013 to Rs 300 billion in 2015-2016.
With the rise in crude oil prices, the above trend could be reversing. Higher prices would mean a rise in the current account deficit and inflation levels. The situation has also been highlighted by the Reserve Bank of India (RBI). In its monetary policy statement this month, the RBI stated that crude oil prices may firm up in the coming months and could be a risk to the year-end inflation target.
So while India's oil-producing companies may benefit from the above development, the economy as a whole could witness some bumps in the ride ahead. As Kunal Thanvi wrote in one of the editions of The 5 Minute WrapUp... "We think prices at petrol pumps could rise. This will have a pass through effect on inflation. When consumer spending normalises post demonetisation, we should all be on our guard for rising inflation."
To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.
In another news update, all eyes are set on the demonetisation deadline. Prime Minister Narendra Modi's 50-day demonetisation drive ends on December 30 and market participants are expecting tax sops from the government to boost the economy.
It is also expected that the government's demonetisation drive will change the way how India spends money to a great extent. The cash crunch, long lines at ATMs and hassles with the Rs 2,000 note have led many people towards digital transactions.
It would indeed be a positive development if India moves to a cashless economy. It will ensure lower costs, improve transparency in transactions, and open up opportunities for some companies.
However, if one has to go by ground realities, they are not so conducive. Facts show that India is not going to become a cashless economy anytime soon. The reality remains that the absolute quantum of such payments is just not large enough compared to the size of the economy.
In our view, unless the whole financial system is made more secure, fool proof, and easy to operate in, the shift towards a cashless economy can prove to be a financial nightmare for the common man.
To know more on digital India and its far-reaching implications, you can read the recent edition of The 5 Minute WrapUp titled Is Digital India Also Made in China? It offers some insights on how digital India is related to the global war on cash.
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