Happy days are here again. That’s likely to be the song on everyone’s lips after Friday’s sharp rally on the US bourses and a fall in crude prices to around $115 (Rs4,853) a barrel—at least 20% below its record high in July.
Things look good from the Indian perspective too because lower oil price eases the country’s concern over surging inflation, which, in the last week, topped 12% for the first time in 13 years with no signs of having reached its peak.
Oil, however, is not the only culprit as far as inflation is concerned—high commodity prices have also contributed equally to the demon of inflation. Together, they shook the Indian economy, which was once considered only next best to China.
With falling oil prices, the pressure of monetary tightening might ease in the coming months and this could boost India’s economic growth, which has started to slow owing to high rates of inflation.
Moreover, with the busy season for the economy drawing near and with good kharif or monsoon crop, lower oil prices may be the catalyst for the beginning of an upturn in the Indian economy. This is, in a way, the trigger the markets were waiting for.
Favourable tide: Stock traders in Mumbai. (Photograph by Santosh Hirlekar / PTI)
This week, the markets are likely to resume on a positive note, tracking gains on the US bourses and the fall in crude prices. The gains are likely to extend till the middle of the week, and may carry on further if the trend on global bourses remains positive and oil maintains its southward journey.
This week, data related to industrial output and manufacturing output for June will be watched very closely when they are released on Tuesday as this will provide some indications on where the economy is headed. Industrial output growth is estimated to be 5.1% in June, compared with 3.8% in May. If industrial output growth rate comes in above 6.1%, then it would boost investor sentiments further and trigger a rally.