Crude oil

If crude oil price continue to hover above $120, it is really negative for equity market and particularly india as we import 70% of oil requirement. The geopolitical tension and bloody unrest prevailing in libya and middle east really can threat global recovery also. and if that crisis spread to saudi arabia, the largest oil producers in OPEC region, it would be extremely painful and double whammy for Indian market which is baffling with stubborn inflation, high fiscal deficit, high current account defecit, high interest rates and issue of corporate governance because of 2G scam which wound dent the confidence of institutional investors in indian market. High crede oil prices means India has to pay more as it is importing 70% of oil requirement (out of which we import 60% from middle east and also this region account for 22% export) which will lead to widening fiscal deficit and also spike up in inflation. Now inflation would lead to high commodity prices and so difficult for aam aadmi and corporate as well. High inflation would add pressure on central government like RBI to raise interest rates to tame or curb inflation, and when liquidity is squeezed or drain out from system you see sector and economy not performing and growth will come down and ultimately corporate result would be down and reflects in share prices as share prices will come down.

Global factors with respect to Eurozone, US and China

Last week there was a meeting of ECB and they hinted that there will be interest rate hike in April. The inflation is near 2.4% and this would be the first hike rate since 2008 global financial crisis. This hike rate would push up borrowing cost and it would be extremely painful for eurozone countries such as Greece, Ireland, Spain etc as they have mounting debt. So worries on eurozone would reduce risk appetite among investors. The US fed has also indicated that they are on the last lag of stimulus package. It means end of cheap money and unlimited funds. So flow of money to emerging countries will come down. the US fed has also hinted hike rate as economy is reviving. Last week unemployment rate (8.9%) came down below 9%, the best in last 1 year. Also robust corporate earnings as almost 70% of S&P 500 Companies have exceeded Wall Street expectations. So the revival in market may lead to rate hike. All these will reduce availability of funds and that too cheaper fund which would reduce flow to Ems and ultimately lower or subdued performance. Central bank in china indicated over the weekend that inflation is hovering at 5% which is above their comfort zone and they will come with hike rate to curb it and bring down to 4% while compensating growth at 8 to 9%. China has grown on an average of 11% in last 5 years and if they growth below double digit then there would be slum in other markets as well. Today china is the largest consumer of commodities and when growth come down leads to less consumption and would be negative for commodities market specially copper and other industrial product as china is the largest user of copper.

Countries like Brazil and Australia are mostly commodity export oriented country. Now falling demand means low growth of these countries as well.