Heady cocktail makes equities tipsy
An unsavory combination of factors is spoiling the risk appetite of equity investors, leading to profit booking at new highs. In the past week, benchmark indices Nifty50 and the S&P BSE Sensex have declined over 2% each. During the same time, the fear gauge, Nifty volatility index (VIX), has risen 11%, indicating discomfort among stock market participants.
Topping the list of dampeners is the spike in global oil prices. Rising geopolitical tensions in West Asia have pushed Brent crude to about $90 a barrel. India is a net oil importer, so higher crude prices have macro and micro repercussions.
Along with elevated commodity prices such as aluminum and copper, this has clouded profitability outlook of paints, tyres and specialty chemicals companies, among others that rely on crude-based derivatives as inputs. Furthermore, recent comments by US Federal Reserve chairman Jerome Powell have poured cold water on hopes of interest rate cuts in 2024. The US Fed is usually seen as a trendsetter for interest rate movements globally.
A delay here might also keep other large central banks on a wait-and-watch mode. Thus, pushing the monetary loosening cycle further ahead and keeping the cost of capital elevated. This could leave investors in IT stocks disappointed, in particular.
Indian IT companies derive significant demand from BFSI clients in developed markets, and a delay in rate cuts could mean bleaker revenue visibility. Amid the global chaos, India is bracing for a crucial domestic event–the 2024 Lok Sabha elections. The manifesto of incumbent Bharatiya Janata Party (BJP) promises continuity and enhancement of previous policies such as ‘housing for all’ and Ayushman Bharat.
Read more on livemint.com
