18 July 2014 - Malaysian Airlines crash: How it impacts Indian markets, gold |
| 18 July 2014 - Malaysian Airlines crash: How it impacts Indian markets, gold Posted: 18 Jul 2014 05:58 PM PDT By Kshitij Anand, ECONOMICTIMES.COM | 18 Jul, 2014 NEW DELHI: Overnight US stocks ended lower and S&P 500 posted its biggest one-day percentage drop since April 10 on news that a Malaysian Airlines passenger jet crashed near the Ukraine-Russia border, and a similar trend was seen in the Asian markets, including India. The BSE Sensex ended 0.31 per cent lower or 80.40 points at 25,641.56. The 50-share Nifty index closed 0.31 per cent lower or 23.45 points at 7,663.90. However, crude oil price and gold saw some sharp movement on the upside and back home the rupee hit 1-month low on high demand for the US dollar. However, analysts are of the view that geo-political concerns are more likely to be a short-term phenomenon for the Indian markets, but bouts of profit booking cannot be ruled out in near-term. "The crash of Malaysian Airlines has fuelled geo-political concerns in global markets, which led to a sharp rise in crude and international gold price; and back home the rupee also came under some bit of pressure," said A K Prabhakar, Independent Market Expert. However, "these concerns are likely to be short term in nature and may not have a lasting effect on the Indian markets. But crude and currency risk still remains till tension abates," he added. Escalating geo-political concerns may well give investors a chance to book some profits in the market, which rallied nearly 6% since June, added Prabhakar. He sees the Nifty correcting till 7350, a downside of over 300 points from current levels, in the next 3-4 weeks. Risk appetite turned weaker heading into Friday morning following fresh US and EU sanctions against Russia for its continued interference in Ukraine. "It was not only the downing of the aircraft which impacts sentiment, we also had a raft of sanctions being imposed against certain companies in Russia that also had quite a negative impact on risk sentiment in Europe and we had evidence and signs of ground offensive by Israel into Gaza," said John Woods of Citi Investment Management. "All three factors really just wade on markets and we saw this very dramatic rally in treasuries and consequent or subsequent unwind in risk particularly in equities," he added. Most analysts are not reading too much into the event. Hence, apart from some knee-jerk reactions, the uptrend for the Indian markets remains intact with some partial profit booking in between at higher levels. "It is a sad event undoubtedly and definitely there will be a lot of noise around, awareness around that; but, I do not see it will turn out to a major event in terms of changing the mood of the market," said Vikas Khemani, CEO-Wholesale Capital Markets, Edelweiss Financial Services BSE -0.98 %. "Yes, of course in the short term there will always be volatility, which could be a stab to these kind of events. That is what the markets are all about," he added. Impact on Crude & Gold: Crude oil prices rose sharply after the news of Malaysian Airlines was officially released. Within 7 hours, prices shot up 2 per cent on the New York Mercantile Exchange, from $101.99/barrel to $103.99/barrel. A logical question arises: why would crude oil prices rise over a Malaysian Airlines flight being shot down while flying over Ukraine? "The situation has to do with the political situation between Ukraine and Russia. After the massacre of the Malaysian Airlines flight, it has been announced that President Obama has imposed very strict sanctions against Russia," said Raghu Kumar, Cofounder, RKSV. The sanctions directly target Russia's biggest banks and energy corporations. By imposing sanctions against Russian energy corporations, crude oil prices are bound to rise. This causes crude oil prices to rise around the world since Russia is the world's 2nd largest oil exporter. "The lower supply of crude oil causes an increase in crude oil prices, making it more difficult for India to import crude oil. India is the world's 4th largest importer of crude oil, behind the United States, China and Japan," he added. Kumar also highlighted an article from a recent Wall Street Journal article, which showed that with rising crude oil prices, Mr. Modi's goal of resurrecting the economy becomes much more difficult. A rise in crude oil prices raises concerns of higher inflation, rising Current Account Deficits, higher costs of petrol, and higher costs of gold since gold and crude oil have a very strong correlation in prices. International gold prices although dipped on Friday on profit-taking after a sharp overnight jump, but the metal is being supported by a wave of risk aversion after a Malaysian airliner was downed in eastern Ukraine, killing nearly 300 people, Reuters reported. Gold, seen as an alternative investment during times of geopolitical uncertainty, rose about 1.5 per cent in the previous session after news of the plane crash which, a Ukrainian official said, was caused by a missile fired by pro-Russian militants, added the report. |
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