Sensex Gains Momentum; Metal Stocks Surge

Thu, 8 Dec 11:30 am

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After opening the day on a positive note, the Indian share markets continued their momentum and are presently trading in the green. Sectoral indices are trading on a positive note with stocks in the metal sector and auto sector witnessing maximum buying interest.

The BSE Sensex is trading up 366 points (up 1.4%) and the NSE Nifty is trading up 112 points (up 1.4%). The BSE Mid Cap index is trading up by 1.3%, while the BSE Small Cap index is trading up by 1.2%. The rupee is trading at 67.41 to the US$.

Indian markets fell considerably yesterday after the Reserve Bank of India (RBI) unexpectedly kept its repo rate unchanged at 6.25%. The central bank also lowered GDP growth rate forecast for current fiscal to 7.1% and admitted to short-term disruption in economic activities due to demonetisation.

Given the flagging state of industrial economy and falling consumption on the back of the demonetisation drive, market participants were expecting the RBI to cut rates by 0.25%. So the RBI's decision to stay pat on interest rates came as a disappointment for market participants.

However, that was not the case for us. Now, as you know, rate hikes and cuts never really disappoint or enthuse us. For in no way do they impact our long term views on stocks. Yes, we did expect the RBI to cut rates by 0.25% to 0.5% considering the liquidity scenario. But it seems there are reasons (which may be inflation, foreign exchange risks etc etc) for the RBI to stay cautious.

What came as disappointment for us was the fact that the RBI has not only stayed away from making its stance clear on demonetization but also failed to put its policy decision in the context of its concerns. That was usually the case with erstwhile policy statements. As our recent edition of The 5 Minute WrapUp states:

• We knew that the withdrawal of the high denomination notes from the system was bound to create temporary uncertainty. However, amidst shortage of new notes the ad-hoc policy changes by RBI have added to the confusion.
  
  In times of a currency crisis, the central banker is expected to take steps to dispel the air of uncertainty and instill confidence through regular updates and plans to tide over. But the central banker chose to remain mum.

Moving on to the news from commodity markets... Crude oil is trading on a positive note today. Most of these gains are seen on the back of a fall in US crude inventories. The US Energy Information Administration (EIA) yesterday stated that US crude inventories for the week ended December 2 dropped by 2.4 million barrels.

Apart from the above, the rally in crude oil prices is seen on the back of OPEC meet in Vienna last week.

During the meet, the OPEC agreed for a production cut starting January. The organisation, which accounts for a third of global oil supply, will reduce production starting in January by 1.2 million barrels per day (bpd) to 32.5 million bpd.

As a part of the OPEC deal, Russia has promised to gradually cut its crude output by up to 300,000 barrels per day in the first half of 2017.

All eyes are now set on Russia and other non-OPEC producers that are going to meet with OPEC tomorrow.

While the above developments are final, the implementation depends on non-OPEC members such as Russia reliably committing to cut output. The decision also hinges on the speed at which American shale producers step up production.

Despite the above uncertainty, crude oil witnessed most of the buying interest during last week after the OPEC decision to cut production starting January. This trend is visible in the chart below-

OPEC Deal and Fall in Inventories Fuels Rally in Crude Oil Prices

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.

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