Over the last few months, the frown on my face has been gradually turning into a smile while getting petrol for my car. Looking at soaring share market prices, it would spread even wider. With the rising values of my shares and savings on account of lower petrol and commodity prices, I thought that the ache din had truly arrived for me.
However, a couple of days back this smile weared off with the news of stock market crashing 900 points on Tuesday – the biggest one-day fall in over five years – making a huge dent to my meagre wealth.
Whilst this served as a reminder about the vagaries of the stock market, it also prompted me to find out what caused this huge downfall in an otherwise positive looking business environment.
And to my surprise, it is the same petrol that was bringing a huge smile which is causing me pain now.
A powerful storm of market forces is rippling across oil and gas industry’s plummeting oil prices, weakening global oil demand and the rapid growth of renewable energy. In just past few days, oil prices hit a five-year low. This has not only caused massive havoc to the exporting nations, but the economic casualties have spread through to the other economies the world over.
From the outset, economies like India that are dependent on oil and gas exports should be laughing away to banks with the savings on import but that isn’t the case. With the world’s economies increasingly dependent on each other’s success, it’s no longer the case that one country’s economic problem is limited to its own backyard. Greece is a classical case in point of how a country with less than 10% of India’s GDP has suddenly become very important for domestic investors. Greece’s economy might be small but its problems have roiled global markets since 2009.
Ashok Malik aptly put it in his tweet “Frankly I don’t think Greek has had such impact on Indian fortunes since Alexander defeated Porus”
Similarly, falling global crude oil prices has its own flipside and perhaps can cause more harm to the Indian economy than good.
Countries like Russia and Venezuela have been massively hit by the Crude oil storm. The rouble, for example crashed owing to falling crude oil prices. Indian markets had to bear the brunt as well even though it benefits from falling cost of fuel. India imports nearly 80 per cent of its energy needs and falling oil prices not only help the government’s finances, but are also beneficial for consumers.
“Oil is setting off several other dominos across the globe. You had a taste of that when we saw what happened in Russia. The biggest fear is this could probably lead to some sort of a currency crisis which might result in treatment of entire emerging markets as a single basket.
“Clearly, in a world where money can enter and exit markets freely, sharp movements, such as the one seen on Tuesday, are unavoidable”, analysts say.
And if this downward trend continues, it portends even more disaster for Indian economy. Although till now the OPEC has not decreased the production in a bid to squeeze and wear off other Oil export economies like Russia and Nigeria, it won’t be too long before their economies start bearing the brunt. And that’s when the large middle east sovereign funds and investors with large holdings in many Indian corporates will start exiting Indian markets out of financial pressures, leaving our Stock market in a bit of flux.
I hope that the crude oil prices stabilise for the larger good of global economies. It might be worth for met to pay some more for driving my car, but higher cost for running the nation will be too much to pay for.