With Brent crude surging to a near-six-month high of $91 a barrel amid escalating geopolitical tension in the Middle East, market experts are advising caution in investment approach. Simmering oil prices may build additional pressure on the rupee when the currency is grappling near its all-time low.
“The recent firming up of international crude oil prices warrants close monitoring,” RBI Governor Shaktikanta Das said in a speech after the monetary policy announcement on April 5. "Geopolitical tensions and volatility in financial markets also pose risks to the inflation outlook,” he said.
Analysts said that a war premium is getting backed into crude oil prices, on escalating tensions between Israel and Iran. “Crude oil, despite high volatility, sustained above its five-month highs in the international markets.,” Rahul Kalantri, vice-president for commodities at Mehta Equities, pointed out.
The cautious commentary coming in from the US Federal Reserve policymakers, as well as escalating geopolitical tension in the Middle East, spooked Wall Street on April 4, leading its key indices to sink more than 1 percent.
As oil prices gained, so did fears around the Federal Reserve's ability to cut interest rates this year.
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“Investors have been focused on how a robust US economy and inflationary pressures will guide the Fed's plans to cut interest rates this year. If inflation continues to stall, no cuts may be required at all by the year end,” said Deepak Jasani, head of retail research at HDFC Securities.
Asian indices have taken cues from the mother market, echoing its fall, while India’s domestic benchmarks Nifty 50 and Sensex have traded in red since the morning session.
However, despite oil prices surge posing as a macro headwind, VK Vijayakumar, chief investment strategist at Geojit Financial Services, said: “It is possible that the exuberant Indian investors and DIIs flush with money may ignore the headwinds to buy the dips, imparting resilience to the market.”
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