Oil prices, 2019 elections will weigh on direction of stock market; says Nilesh Shah of Kotak AMC

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October 8, 2018 3:52 PM

Even as the stock markets continue to remain under heightened pressure, with the Sensex falling by more than 400 points intra-day, Nilesh Shah of Kotak AMC points out that if crude oil prices breach the $100 mark, we could see further correction.

The current situation is a function of volatility and events in debt market, credit market, currency market, oil market and liquidity, noted Nilesh Shah.

Even as the stock markets continue to remain under heightened pressure, with the Sensex falling by more than 400 points intra-day, Nilesh Shah of Kotak AMC points out that if crude oil prices breach the $100 mark, we could see further correction. “The real issue for us remains oil. If oil is going to go to $100 and stay there, there is more downside to the market. But if with our luck if oil starts to flowing back to $70 a barrel, there will be upside in the market,” Nilesh Shah told in an interview to ET Now. According to the expert, oil prices and election will weigh on the direction of stock markets going forward.

In his address, Nilesh Shah noted that a combination of factors are weighing on stock market returns. The current situation is a function of volatility and events in debt market, credit market, currency market, oil market and liquidity, he said. Taking stock of these factors, he notes that oil went up from about $55 last year to $85 now, a jump of almost 50%. Also, India’s current account deficit expanded by more than $20 billion because of oil price movement.

Further, the interest rate moved from 7.23% in April 2018 to 8.15% — a jump of almost 100 bps — despite inflation coming down, he explained. Apart from these factors, there was rise in US interest rates as well as concerns about fiscal slippage courtesy higher oil prices, he said, adding that the ongoing correction was also getting impacted due to currency headwinds. “A combination of rising oil prices, rising interest rates, weakening currency, expected rise in fiscal deficit, tightening liquidity and credit event created its own shadow on the equity market and the downfall or correction or a crash in equity market is function of combination of all these markets,” he said.

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