Rising crude oil prices may cause stocks to lose their shine

Analysts have warned that a sharp rise in crude oil prices could lead to longer-than-anticipated global inflation and the end of the super-cheap currency bullish. Commodity inflation also poses a threat to the revival in corporate earnings.

Dhananjay Sinha, managing director and chief strategist, JM Financial Institutional Securities Ltd, said a combination of fall in crude oil prices and rising prices may challenge the perception that the inflationary environment will not be worrying. “Markets have taken a benign view on the US Federal Reserve’s decision to begin tapering from November and follow it up with a normalization of its ultra-easy currency policy stance. There could be downside risks to this benign outlook if inflation remains high. From India’s point of view, therefore the outlook on crude oil can be very important,” he said.

Goldman Sachs has raised its forecast for Brent crude to $90 a barrel by the end of 2020, despite the sharply anticipated fuel demand recovery, the delta version of SARS-CoV-2 and Hurricane Ida in the US. Despite affecting production. Due to which the global supply was affected.

Vinod Karki, head of strategy research, ICICI Securities Ltd, said the rise in commodity prices in September continues to pose a risk to the inflation trajectory. However, the resiliency of the stock market reflects strong investor sentiment driven by expectations of a strong cyclical economic recovery as the threat of a third Covid wave appears low, while the vaccination rate in India picks up. “As capital markets move beyond liquidity support from central banks, investor attention is turning to growth revisions, which are heavily based on how the investment cycle progresses,” Karki said.

Indian markets have hit record highs in September, despite an increase in policy rates by the US Federal Reserve and signs of an Evergrande crisis in China. On Monday, the market hit record highs during the day, but mostly remained in the range. The BSE Sensex closed 29.41 points higher at 60,077.88, while the Nifty closed 1.90 points higher at 17,855.10.

Sharekhan Senior Vice President, Capital Markets Strategy, Gaurav Dua by BNP Paribas said that a combination of rising energy prices, China issues and taper tantrum could trigger much-needed relief in equity markets which has been used to build quality deposits. should go. stock. “In terms of market outlook, valuations are no longer cheap and a pullback would be healthy after such a strong all-round rally. We don’t expect any major correction in Nifty or Sensex, but broader markets are ready for a deeper correction. “Rising inflation expectations, if they are driven by demand rather than supply-side issues, can be worrying,” he added. Most central banks, including the RBI, have said that the growth in inflation is transitional and will moderate in the coming quarters. This is the reason why RBI decided to maintain status quo on policy rates even though retail inflation is above the comfort level of 6. % earlier this year,” he said.

Reuters contributed to the story.