stock market fall

Indian bonds, rupee fall tracking jump in oil; more losses likely

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On Wednesday, Indian bond yields rose slightly while the rupee fell, mirroring a strong spike in global crude oil prices that threatens to drive up domestic inflation and deepen the country’s current account deficit.

Oil prices surged as trade finance for oil shipments was hampered by sanctions imposed on Russian banks following Moscow’s invasion of Ukraine, and some merchants chose to avoid Russian supply in an already tight market.

The benchmark 10-year bond yield (IN065432G=CC) rose 3 basis points to 6.80 percent from its previous level on Monday. In early trade, it reached 6.81 percent, the highest level since February 9. Tuesday was a local holiday, thus the markets were closed.

Traders predict that if no additional debt sales occur this fiscal year, rates will trade in a 6.75 percent to 6.85 percent range, depending on global crude movement and the unfolding geopolitical environment.

India imports more than two-thirds of its oil needs, and rising crude prices will raise imported inflation while worsening the country’s current account deficit.

The partially convertible rupee (INR=IN) was trading at 75.63/64 per dollar, down from 75.34 at the previous closing. It fell to a low of 75.7725, its lowest level since December 20.

Indian stocks slumped as statistics showed that the country’s economic growth fell short of expectations, with the intensifying Ukraine conflict and surging crude oil prices also impacting.

“With a cloud of uncertainty over the timing of the LIC IPO, the pair could move towards 76+ levels if the IPO is pushed to the following fiscal,” HDFC Bank analysts wrote in a note.

“In the near future, the 10-year benchmark yield is projected to move in the region of 6.75-6.8 percent,” they noted.

Bankers advising India’s state-run Life Insurance Corp (LIC) on its initial public offering (IPO) have encouraged the government to postpone the IPO due to the market jolt produced by Russia’s invasion of Ukraine, according to two sources familiar with the talks.

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