TRUMP, CRUDE AND IIP PULL MARKETS DOWN

By Ruma Dubey

On Thursday, 8th Nov, the BSE Sensex catapulted up over 450 points and we all were left bewildered, wondering what had happened to the market suddenly to show this optimism. Of course, we worked out various reasons for the jump that day but nothing never really struck a convincing, right chord.

Today, the markets are down over 150 points and the overall mood on the Street is somber. No one is even talking about the 450 points jump three sessions ago. But all are convinced about the fall today and feel that the weakness will persist.

The downbeat mood has various reasons to it and all happened over the weekend. First and foremost, OPEC and non-OPEC countries played spoilt sport and announced that they too will be announcing a production cut, first time since 2001. This has led to crude prices soaring to 2015 levels already and people have started talking about $60/barrel. The RBI in its policy statement last week, more than the demonetization, harped on about the rising crude price and how it could affect inflation. Well, looks like it will affect growth, coupled with the Q3 and Q4 showing impact of the demonetization. This has affected the overall moods and especially Oil Marketing companies, paint companies which use crude subsidiary as raw material in a big way and even shares of airline companies are down in the red.

Then came the comment from the US President elect, Donald Trump. Talking about the case of Disney World and other US companies, he said, “ we will not allow Americans to be replaced by foreign workers.” This is obviously construed as a reference to Indian and other foreign countries which send scores of their people to USA to work on H1-B visas. This is expected to affect the Indian IT sector which has just about started to look up.

Disney World and two outsourcing companies – HCL Inc and Cognizant Technologies have been slapped with a federal lawsuit by two of its former technology staff, alleging that they conspired to displace American workers with cheaper foreign labour brought to the US on H-1B visas, mostly from India.

The third whammy was the IIP for October which was announced after market hours on Friday, 9th Dec. It contracted 1.9% in October after rising 0.7% in September. Capital goods contracted for the twelfth consecutive month, by 26%. What is worrisome is that this contraction was despite October being the month of festive season buying and now with November expected to reel under the impact of demonetization, the fear is that we will continue to see negative IIP for November too.

Thus Crude, Trump and IIP all three together have dampened the moods. On the other hand, the only other ‘event’ on the horizon for the market this year is the US Fed meet scheduled for 15^th Dec. Most reiterate that a rate hike this time is inevitable and about time too. This has made the US dollar strong vis-à-vis all currencies and for India, along with rising crude price, a weaker rupee just does not bode well.

For India, moods could turn around if and only if the GST makes it through the Parliament Winter session, due to end on 16^th. If this session too goes waste then many analysts say that they do not see GST becoming a reality on 1^st April 2017.

Well, man proposes and God disposes… let’s see how things pan out the over few days. As the year 2016 starts winding down, maybe these events make us hope for a better 2017. And typically, seasonally too, this time of the year, markets are usually down and very lackluster, heralding the beginning of the holiday season. So let’s not panic and let our senses rule logic; stay put in strong stocks and ride through every up and down with equanimity.