Indian share markets are trading deep in the red presently. The sell-off is seen on the back of rising crude oil prices and falling rupee.
Sectoral indices are trading in the red with stocks in the IT sector, realty sector and energy sector witnessing maximum selling pressure.
The BSE Sensex is trading down 830 points (down 2.3%) and the NSE Nifty is trading down 250 points (down 2.3%). The BSE Mid Cap index is trading down by 2.1%, while the BSE Small Cap index is trading down by 2.2%. The rupee is trading at 73.69 to the US dollar.
Stocks from the oil & gas sector are in focus today as the Reserve Bank of India (RBI) has permitted oil marketing companies to borrow as much as US$10 billion through External Commercial Borrowings (ECBs).
The central bank has also waived off hedging requirements to relieve the pressure on the rupee which touched a new low yesterday.
In other news from the macroeconomic space, the government has raised the minimum support price (MSP) for major crops, including wheat, pulses and oil seeds, by 2% to 21%, which is expected to increase its acreage in the rabi or winter-sowing season.
In the news from currency markets, the rupee hit a fresh record low of 73.77 against the US dollar in early trade today.
The selling pressure came as the dollar index rose on the back of a spike in Treasury yields following upbeat US data and comments from Federal Reserve Chairman Jerome Powell that were seen as hawkish.
The rupee also plunged by 43 paise yesterday to breach the historic low of 73 level as soaring crude oil prices fuelled worries over capital outflows and widening current account deficit.
The domestic currency closed at a record low of 73.34, down by 43 paise or 0.6% at the interbank foreign exchange.
Reportedly, foreign investors withdrew Rs 15.5 billion on a net basis from capital markets on October 3.
The currency pared some losses to touch a high of 72.90 per dollar on market speculation that RBI may open special dollar window for oil companies.
According to the reports, rising crude oil prices, depreciating rupee and widening current account deficit are some of the factors the policy-making body would keep in mind while deciding on interest rates.
What does the fall in rupee mean for the Indian economy?
A depreciation in rupee means importers buying goods and services at a higher rate than earlier. This doesn't bode well for a developing economy that relies heavily on imports.
Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil's rising cost.
On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.
Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.
Looking at the brighter side, rupee depreciation brings a cheer on the exports front.
A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.
Also, speaking of depreciating rupee, note that the Indian rupee is the worst performer in Asia in 2018. As can be seen from the chart below, it has fallen by around 12% against the US dollar this year.
Indian Rupee is the Worst Performing Currency in Asia
In the news from macroeconomic space, as per a leading financial daily, rising bond yields are weighing on the domestic stock markets.
India's 10-year bond yield was hovering above 8.18% on Thursday against the previous close of 8.11%. On a year-to-date basis, bond yields have spiked 84 basis points.
Note that the bond market in India is presently witnessing a strong revival.
Foreign debt raised by Indian companies surged ten-fold to US$ 41 billion in 2017. This is the highest ever infusion of foreign funds in the domestic debt markets in the last 15 years.
At US$ 23 billion, foreign investments in government securities and corporate paper took the cake. This was followed by dollar-denominated bonds that attracted around US$ 16 billion of foreign investments whereas funds of US$ 2 billion were mopped up by masala bonds. Masala Bonds are rupee-denominated borrowings by Indian entities in the overseas markets.
All this has made the Indian bond market flush with foreign debt investments lately.
Apart from the above, the sovereign rating upgrade by Moody's early this year coupled with factors such as economic stability, abundant global liquidity and diversification needs of investors have stoked demand for Indian bonds in the overseas markets.
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