Brent Near $114 Pressures Indian Stocks Amid Inflation Fears
Key Facts
Indian stocks fell in trading on 23 October as oil climbed to about $114 a barrel. The Nifty 50 was down 0.70% at 22,529.15 points, while the Sensex fell 0.39% to 72,964.13 points by 10:13 a.m. local time, according to Reuters. The declines extended the market’s losses after both benchmark indexes shed about 2% over the previous three sessions. Harishelvan Radhakrishnan, founder and chairman of HST Wealth, said, "Brent near $114 is a major risk for India." He added that higher oil prices could worsen inflation and hurt consumption and corporate profitability. Reuters linked the rise in crude to supply concerns following Houthi attacks on Saudi Arabia, the largest oil exporter.
Purchasing managers’ index data added a mixed picture of activity in October. The preliminary manufacturing index fell to 54.9 from 55.1 in September, as output grew at a slower pace, while a slowdown in employment weighed on the headline reading, according to Reuters. The manufacturing reading remained at this level but did not return to the previous month’s reading. By contrast, the preliminary composite index rose to 56.7 from 55.9 in September, above the Reuters poll average forecast of 56.1. This reflects an acceleration in overall private-sector activity despite the slight decline in the manufacturing index.
Services were the biggest driver of the increase in private-sector activity, with the business activity index rising to 56.2 in October from 55.2 in September, Reuters reported. The agency said demand strengthened in the sector, but employment was unchanged. That ended a nine-month run of employment growth. On costs, private-sector input price inflation slowed in October to its lowest level in about a year. These indicators set improving services and easing input costs against the slower manufacturing reading and unchanged services employment.
Oil’s pressure on stocks coincided with a sharp rise in Brent prices during October. On 22 October, crude jumped 4% to $113.17 a barrel after reaching a five-month high, compared with less than $97 at the start of the month, according to the Associated Press. The agency linked the rise to concerns that the war with Iran would continue and uncertainty over when the global energy sector would return to normal. In the Indian market, the Nifty 50 and Sensex also recorded losses the previous day: the former fell 0.54% to 22,687.65 points, while the latter dropped 0.62% to 73,249.39 points on 22 October, according to Reuters. These moves point to continued pressure on Indian stocks amid higher crude prices and inflation concerns.
India’s next industrial production data remain a near-term event for markets: the Ministry of Statistics has set 28 October as the release date for the September Index of Industrial Production. The index recorded annual growth of 8.0% in August, compared with 6.7% in July, while manufacturing grew 9.0% in August, according to ministry data. The upcoming release will give investors a more recent reading on domestic industrial activity after those results. On monetary policy, Reuters said minutes of the Indian Monetary Policy Committee meeting kept open the possibility that further rate increases may be needed to curb inflation, while members warned of the risks to growth. Markets are also watching the Federal Reserve meeting on 27 and 28 October and U.S. personal consumption expenditures data the following week, according to Reuters.