Chart of the day: Brent crude Vs Nifty in past 3 years

Riken Mehta
Moneycontrol.com

Follow me on Twitter @mehtariken

The price of Brent crude fell below the USD 100 a barrel mark for the first time since June 2013 on Monday as data from China and the US pointed to slower economic growth in the world’s largest oil consumers.

Investors have driven global prices down 15 percent from mid-June highs as fears about a supply disruption in Iraq or elsewhere faded and concerns about weak global demand grew. This has given more legs to the extended bull run in Indian equities.

While crude prices came off, foreign institutional investors pumped in a net of Rs 1,162 crore into Indian equities, which is expected to help the Central government and the Reserve Bank of India to rein in fiscal deficit and inflation.

Recap 2013: How equities, commodities, currencies performed

Riken Mehta

Follow me on Twitter @mehtariken 

After nearly a six-year wait, Indian equity benchmarks, the BSE 30-share Sensex and the NSE 50-share Nifty broke their record highs this year.  But that’s not it; 2013 saw a number of fresh multi-year record lows/highs both on the macro and investment front.

Despite FIIs investing USD 20 billion in 2013, the index returns for FIIs in dollar terms is negative at 3.91 percent primarily due to rupee depreciation. The year 2013 has been more stock and sector specific with IT, pharma and FMCG leading the list of winners.

Let’s take a look at how various asset classes fared in the year 2013.

Developed markets versus Emerging markets

As seen from the table, benchmark indices of US, UK and Japan have given handsome double digit returns so far this year. The momentum in these markets may continue as major indices of US (barring Nasdaq) and UK (barring CAC) are trading at life-high. Nikkei is trading close to its 6 year high. Emerging markets have posted negative or single digit positive returns this year, underperforming developed markets.














Commodities

Gold has posted its biggest annual loss since 1981 as investors shifted their money from safe haven asset class to risky asset class like equities on the back of strong economic growth in developed countries. Brent Crude remained in a narrow band of USD 95-115 per barrel.



















Currencies

The domestic currencies of the emerging markets depreciated substantially this year on fears of tapering by the US Federal Reserve. The rupee depreciated to a record low of 69 levels making it one of the worst performing Asian currencies this year. Japanese yen on the other hand weakened to a five-year low on the back of loose monetary policy to spur growth in the economy.











Indian Indices

Who 'really' gained from petrol deregulation?

Riken Mehta

Follow me on Twitter @mehtariken 

Petrol prices were deregulated by the government on June 25, 2010 in an attempt to cut down the fuel subsidies and reduce the burden on upstream and downstream companies.  Crude import bill forms a major part of the CAD and fewer subsidies would also allow the government to spend more thereby propelling the growth of the economy. However, nothing has worked as per the UPA government’s expectation.

The burden of upstream companies like ONGC, Oil India and Gail have doubled so far since deregulation on higher under-recoveries and would soon become cash-strapped if things remain constant.

Downstream companies have not been able to pass on the complete hike of petrol and diesel to consumers despite diesel being deregulated in January this year by the government. Also, delay in receiving fuel subsidies led to heavy borrowing by OMCs to meet their working capital requirements. Barring BPCL which has exploration assets, these companies have not rewarded their shareholders who invested on hopes of turnaround since deregulation.

Brent crude has surged 33 percent while rupee has depreciated 34 percent since petrol deregulation. The consumers are now shelling out 50 percent more for petrol and diesel. Sales of auto companies also took a hit as the price differential between petrol and diesel has come down significantly. And it can’t get better with the timing of IOC FPO thereby forcing the government to give subsidies in the middle of the year to repair oil marketing company’s balance sheet.

* From 25-Jun-2010 to 31-Dec-2010

Particulars	On 25-Jun-2010	2010*	CY2011	CY2012	CY2013	Since 25-Jun-10
Avg Petrol (Rs/ltr)	52.2	56.51	69.52	74.6	75.97	50%
Avg Diesel (Rs/ltr)	39.88	47.77	44.98	47.84	56.56	50%
Avg Brent Crude (USD/bbl)	78.12	82.04	110.91	111.68	108.31	33%
Avg USDINR rate	46.54	45.7	46.67	53.49	57.99	-34%
Under Recovery (Rs Cr)		78190 (FY11)	1,38,541 (FY12)	1,61,029 (FY13)	60907 (H1FY14)	Over 4 lakh crore
Upstream burden		30297 (FY11)	55000 (FY12)	60000 (FY13)
BPCL	310.68	6%	-27%	49%	0%	15%
HPCL	401.05	-3%	-36%	15%	-26%	-46%
IOC	377.3	-10%	-26%	6%	-22%	-44%
ONGC	316	2%	-21%	4%	6%	-10%
Oil India	544.08	3%	-15%	-2%	0%	-14%
GAIL	482.75	6%	-25%	-7%	-4%	-29%

Double whammy for India: Dollar Index at 3-year high, Crude at 3-month high

Riken Mehta

Don’t be surprised to see the Indian rupee hitting fresh all-time lows in days to come after the dollar index touched 3-year high on Friday. The latest US non-farm payroll data has exceeded beyond analyst’ expectations signifying that the job creation is happening and the US economy is coming back on growth trajectory. This has further fuelled the speculations of US Fed tapering off the quantitative easing program later this year. 

As seen from the chart, crude and dollar index have moved in the opposite directions. However, with impressive job data, crude has also rallied along with dollar index on expectations of demand for oil picking up in US. Back home, analysts have already predicted the rupee to touch 62-65 levels in this calendar year.  India being net importer of crude will be severely impacted from the current rally in crude and dollar. This will further deteriorate the current account deficit. Also, strength in US dollar will further support the US treasuries leading to more unwinding of positions by the FIIs from the bond market.