Oil prices set for biggest Q1 gain since 2009 on US sanctions, OPEC cuts

U.S. West Texas Intermediate (WTI) futures were at $59.56 per barrel at 0211 GMT, up 26 cents, or 0.4 percent, from their last settlement.

Oil prices rose on Friday, pushed up by ongoing supply cuts led by producer club OPEC and U.S. sanctions against Iran and Venezuela, putting the crude markets on pace to post their biggest first quarter gain since 2009.

U.S. West Texas Intermediate (WTI) futures were at $59.56 per barrel at 0211 GMT, up 26 cents, or 0.4 percent, from their last settlement.

WTI futures are set to rise for a fourth straight week and are set for a first quarter gain of 31 percent.

Brent crude oil futures were up 30 cents, or 0.4 percent, at $68.12 per barrel. Brent futures are set to increase by 1.7 percent for the week and are set to climb by 27 percent for the first quarter.

For both futures contracts, the first quarter 2019 is the best performing quarter since the second quarter of 2009 when both gained about 40 percent.

Oil prices have been supported for much of 2019 by the efforts of the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies like Russia, together known as OPEC+, who have pledged to withhold around 1.2 million barrels per day (bpd) of supply this year to prop up markets.

"Production cuts from the OPEC+ group of producers have been the main reason for the dramatic recovery since the 38 percent price slump seen during the final quarter of last year," said Ole Hansen, head of commodity strategy at Saxo Bank.

The price surge triggered a call by U.S. President Donald Trump on Thursday for OPEC to boost production to lower prices.

"Very important that OPEC increase the flow of Oil. World Markets are fragile, price of Oil getting too high. Thank you!" Trump wrote in a post on Twitter.

OPEC+ are meeting in June to discuss whether to continue withholding supply or not.

OPEC's de-facto leader Saudi Arabia favours cuts for the full year while Russia, which only reluctantly joined the agreement, is seen to be less keen to keep holding back beyond September.

However, the OPEC+ cuts are not the only reason for rising oil prices this year, with analysts also pointing to U.S. sanctions on oil exporters and OPEC members Iran and Venezuela as reasons for the surge.

Despite the surging prices, analysts are expressing concerns about future oil demand amid worrying signs the global economy may move into a recession.

Saxo Bank's Hansen said "the biggest short-term risk to the oil market is likely to be driven by renewed stock market weakness."

Stock markets have been volatile this year amid signs of a sharp global economic slowdown.

"Business confidence has weakened in recent months ... (and) global manufacturing PMIs are about to move into contraction," Bank of America Merrill Lynch said in a note, although it added that "the services sector ... continues to expand unabated."

Given the OPEC+ cuts, however, Bank of America said it expected oil prices to rise in the short-term, with Brent prices forecast to average $74 per barrel in the second quarter.

Heading towards 2020, however, the bank warned of a recession.

Source: www.moneycontrol.com

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UPA or NDA, Nifty always bounces back from lows after election outcome

The rise or fall in the markets will be dictated by expectations or lack thereof of a stable govt coming into power post elections apart from other global factors impacting their direction.

If we start from the 2004 general elections, Nifty50 made a bottom in April 2003 and rose non-stop till January 2004. Post that, the index went sideways for 4 months and later fell in May 2004 as the NDA Govt got voted out of power.

The markets made a bottom in May 2004 post elections and later rallied 40.7 percent from the low point registered in the same month till the end of May 2005.

Foreign institutional investor (FII) activity, which was subdued till March 2003, picked up in the following three years gradually before falling again in 2006-07.2009 elections:

Post the Lehman sell-off, Nifty consolidated between November 2008 and March 2009. It later began to rise for the next two months in anticipation of the election outcome.

Nifty rose 61 percent from February-end to May-end. Post the results, Nifty rose only 14.3 percent from May 2009-end to May-2010 end.

FIIs were largely net sellers worth Rs 47,700 crore in 2008-09 on the back of Lehman crisis. However, in the succeeding year, they were large buyers to the tune of Rs 1,10,221 crore.

This was on the back of QE – 1 announced by the US Fed in November 2008, which was expanded in March 2009 (Nifty made a bottom on March 6, 2009).

2014 elections:

Nifty went sideways between November 2013 and February 2014. Nifty rose 15 percent from the end of February to end of May 2014. It rose 16.7 percent from May 2014-end to May 2015-end.

Markets were rising due to buying in large amounts by FIIs (2012-13 Rs 1,40,033 crore, 2013-14 – Rs 79,709 crore) due to falling commodity (including crude) prices, RBI cutting rates and generally easy liquidity across the world.

FPIs continued buying in 2014-15 (Rs 1,11,333 crore) partly due to NDA winning the Lok Sabha elections.

This bullish momentum came to a halt in March 2015 due to combination of factors like 12-year high USD rate, slowing Chinese economy and outcome of bank stress tests.

Now at the current Juncture- 2019 elections:

Between the end of November and end of February, Nifty closed flat on a monthly basis. In that respect, we are similar to the 2004 scenario (even then NDA was in power).

However, NDA lost the election in 2004 and Nifty fell sharply in May 2004 but rose thereafter. The difference is that in 2004, the sideways trend was during the election phase while in 2019, the sideways phase was before the election dates were announced.

In 2019, we are facing FII activity that is on the lower side (2017-18 +Rs 25,635 crore, 2018-19 –Rs 27,321 crore). Volatility will keep rising as election dates come closer.

The rise or fall in the markets will be dictated by expectations or lack thereof of a stable Govt coming into power post elections apart from other global factors impacting their direction.

In all elections, there is a severe reaction to the outcome of elections but later from the low levels, there is a decent recovery over the next year.

Investors have a choice as to whether they would wait till the election results are digested and then invest to be more sure of making money or they would prefer to invest ahead of the results (in which case they may have to face a fall during the election phase or after the elections). Traders who are nimble footed can do both – i.e. trade ahead of results and invest later.

If the Nifty rises well during the election phase, then the possibility of it rising post elections by a large margin will be low irrespective of the outcome, while if the Nifty remains sideways or corrects during the election phase and the outcome of election is favourable, then there are better chances of a smart up move therefrom.

The reaction of FIIs would be crucial as is evident from the way the frontline and mid/smallcap indices have behaved since February 22, 2019, when FIIs changed their stance on India in terms of flows from neutral to positive.

In all instances, Bank and Capital Goods indices have done well between the announcement date and result date. PSU and Realty indices are next.

Source:www.moneycontrol.com

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Bulls take charge on Street as Sensex rallies 1,000 pts in March; 5 factors driving the rally

In February, foreign portfolio investors (FPIs) had invested a net amount of Rs 11,182 crore in the capital markets (both equity and debt)

The S&P BSE Sensex has rallied by over 1,000 points so far in March, excluding Tuesday’s smart rally of nearly 500 points, while Nifty50 has risen nearly 400 points in the same period.

Positive global, as well as domestic cues boosted risk-on rally on D-Street. Supported by a sharp rally, the market capitalisation (m-cap) of BSE-listed companies rose by Rs 6.52 lakh crore as of March 11 to Rs 146.93 lakh crore on Monday compared to Rs 140.41 lakh crore recorded on February 28.Strong buying from foreign investors:

Foreign Institutional Investors (FIIs) poured in over Rs 3800 crore in Monday’s session taking total inflows to a little over Rs 8,000 crore so far in March which pushed the S&P BSE Sensex to a 6-month higher while the currency touched a fresh 2-month high.

FIIs were net buyers (equity & debt) in February as well as January 2019 for Rs 13,564 crore, and Rs 127 crore respectively, Moneycontrol.com data showed.

In February, foreign portfolio investors (FPIs) had invested a net amount of Rs 11,182 crore in the capital markets (both equity and debt).

“FPI inflows into India has clearly turned positive since the end of Jan this year. The flows in February were the highest since November 2017. The trigger for this inflows is the dovish statement that came from the Fed at the end of January,” VK Vijayakumar Chief Investment Strategist at Geojit Financial Services told Moneycontrol.

“The Fed had categorically stated that ‘the rate hikes are on hold’ in the context of the global slowdown. India, like other emerging markets, is receiving capital flows due to this trigger,” he said.

Opinion Polls say Modi may come back to power:

Indian markets rallied a day after Election Commission announced the final dates for Lok Sabha elections. The elections will begin on April 11 and polling will be held over seven phases till May 19, followed by counting of all votes on May 23.

The ruling Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) will sweep a majority of parliamentary seats up for grabs in the election starting April 11, Reuters quoted CVoter opinion poll which was televised on a local channel over the weekend.

The coalition led by Prime Minister Narendra Modi could win 264 seats in the election compared to 141 for the Congress Party-led opposition alliance. A total of 543 seats are up for grabs in the election.

More opinion polls in the run-up to the final event are likely to ease concerns around a weak coalition and fuel rally in Indian markets, suggest experts.

“Markets have rallied post events in the border state which has certainly improved prospects of the ruling party in the upcoming general elections,” Dipan Mehta, Director, Elixir Equities told Moneycontrol.

“The trend may continue for a few more weeks, but large scale follow up buying is likely to emerge only if there is a favourable outcome in the Lok Sabha elections. Opinion polls leading up to the results will also impact the sentiment be it positive or negative,” he said.

Global Cues:

On Monday, US markets snapped 5-day losing streak. The gains were largely led by technology stocks. Asian shares rose after the European Commission agreed to changes in a Brexit deal ahead of a vote in the British parliament on a divorce agreement.

European Commission head Jean-Claude Juncker agreed to additional assurances in an updated Brexit deal with British Prime Minister Theresa May on Monday, but warned UK lawmakers would not get a third chance to endorse it, said a Reuters report.

Rally in small & midcaps:

The broader market is one space which is attracting maximum attention. The S&P BSE Mid-cap index rose 5.4 percent while the S&P BSE Small-cap index gained 7.8 percent compared to 3.3 percent up move seen in the S&P BSE Sensex so far in March.

The value is emerging in select bottom-up opportunities in the mid-caps space, CLSA suggests in a note because, despite the recent recovery, the Mid-cap Index has still underperformed the Nifty on a year-to-date (YTD) basis.

The valuation discount to the Nifty now stands at 8.5 percent. The earnings downgrades for FY19 on Mid-caps have been significantly lower than Nifty which is positive.

“A sectoral analysis highlights that recent stock performance is led by sectors where investors perceive ‘value’. We highlight that 40 percent of Nifty Midcap universe is trading below its 5-year average valuation, particularly in the Industrial & EPC space,” said the CLSA note.

Technical Factors:

The S&P BSE Sensex closed above 37000 on Monday for the first time since September 19, 2018, while Nifty50 reclaimed 11,100 levels for the first time since September 21.

Continuing the momentum, the index reclaimed 11,200 levels for the first time since September 19, 2018. Investors should remain long on the index with a stop loss below 11000 levels, suggest experts.

The index is currently trading above its 20, 50, 100 and 200-Day SMA. Oscillators and Indicators like DMI and MACD have turned bullish on the daily as well as weekly charts.

“The immediate resistance for the Nifty is seen at 11345, which happens to be 76.4 percent Fibonacci retracement of the fall seen from the all-time high 11,760 (Aug 2018 High) to 10,004 (Oct 2018 bottom),” Nandish Shah, Senior Technical & Derivatives Analyst, HDFC Securities told Moneycontrol.

“Support is now shifted upward to 11,000 for Nifty which was acting as resistance earlier. The Bank Nifty gained 0.74 percent to close at 27966 levels. Bank Nifty is only 1.5 percent away from its all-time high of 28388, registered in Aug 2018,” he said.

Shah further added that considering the technical and derivative evidence discussed above, we believe that one should remain optimistic in the Nifty with the stop loss of 11,000 levels.

Source: www.moneycontrol.com

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