Fuel price hike may be big drag on Dalal Street

Fuel price hike may be big drag on Dalal Street

MUMBAI: Domestic shares may be under pressure early this week on fears that the government’s decision to hike fuel prices will boost inflation. Investors are concerned that a further rise in prices could prompt the Reserve Bank of India (RBI) to take stronger steps in monetary policy to combat inflation. Shares of automakers are likely to be subdued on concerns that higher fuel prices could dent demand for vehicles. Shares of oil marketing companies (OMCs) such as HPCL, BPCL and IOC and explorers, including ONGC, could rise. “We may see these stocks (oil) going higher in the next few days because they had been lacklustre for a very long time,” said Ambareesh Baliga, vice-president, Karvy Stock Broking. He added that auto stocks should be avoided, as they will see some profit-booking, after a good rally in the past few weeks. Though the move to raise oil and gas prices is expected to improve the government’s finances in the long run, a section of the market is concerned about the timing of the increase, as inflation is still high. Also Read → ONGC, IOC could hit market soon with FPO → How to make exit decisions in volatile market → Private oil companies to go full throttle with expansion Inflation, as measured by the wholesale price index (WPI), rose to 10.16% in May. A silver lining for the stock market would be the better-than-expected progress in the monsoon, which is likely to bring down food prices. “A good monsoon will take care of food inflation and will boost the agricultural sector, which is one of the key constituents of economic growth,” said Mr Baliga. Mid-cap shares are likely to see more activity than their frontline peers, if futures and options data are any indication. “There have been aggressive rollovers in the mid-cap space. So, they will witness an increase in trading activity in the days to come,” said Bhavin Desai, manager-derivatives, Motilal Oswal Financial Services. Analysts said the drop in volumes in the futures segment, despite a strong rollover to the July series, suggests investors have become more risk-averse. Global investors will closely watch the outcome of the G-20 meeting over the weekend. On Friday, overseas markets ended weak on concerns that the decision by European governments to cut down on spending and increase taxes could delay global recovery.

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Weekly Outlook - June 27 2010

Src: ET and DP blog and etc