Hike in petrol,diesel prices marginally helpful to OMCs

CNBC-TV18s Executive Editor, Udayan Mukherjee – There will be an initial move for sure because there has been a lot of excitement in the build up and has taken a long time to come. So there will be a release of tension from the market’s perspective once the news is out. But my sense is that once the initial bid is done this is going to be a bit of a non-event for the stock market. Unless we are surprised by the findings of it or the eventual decision which the government take.

If indeed the petrol price is say something between Rs 3-4 per litre and the diesel price is close to Rs 2 per litre, which seems quite likely. If that is what comes through what does it do to all the constituents which get impacted. Does it help the oil-marketing companies too much? I doubt it very much because you are talking about Rs 2 lakh crore of under-recovery Rs 2 lakh crore plus and the package which the government is talking about will only give back maybe Rs 25,000-30,000 crore including some duty cuts that is to the oil-marketing companies. That’s about 15% of what they are losing. So I don’t think that is enough to galvanize them to action or anything like that. So that takes into account the oil stocks per se which are a small constituent of the market and its weightage in any case.          

What does it do to stoke inflation? A little bit, not a whole lot. More than Rs 3 just about on petrol a couple of rupees on diesel will stoke Wholesale Price Index (WPI). But single-handedly will not probably lead to 1-2 percentage point jump in the WPI inflation. So the market knows that it will add to inflation but will it fall-off the cliff at that kind of a magnitude of a rise, I doubt it very much. I suspect what the government might also attempt to do is to hide some of its fiscal issues under the carpet of the States problems, which is consistent with what it has been trying to do. But I don’t think it fools the market anymore. So instead of taking a lot of the cuts itself on its central books, it might say States will probably have to cut some of the sales tax. But the market is more savvy than that. It looks at the composite fiscal deficit picture and it knows the kind of damage. Whatever package the government comes out with today, will it hugely benefit the fiscal situation of the government, I doubt it very much.

What does it change? It nudges up inflation a little bit it doesn’t help the fiscal situation beyond a point majorly. It helps the oil-marketing companies marginally, but it is a drop in the ocean they will still be very much in the red so it doesn’t help them too much. So what do we shouting about, what difference does it make to the market as such? Can the market take it as a hugely bold policy move forward. Oh! You have got be kidding if you think that. What is Rs 2 and 3 here and there, you cannot seriously believe that’s a great reform or resolute policy measure by the government after dithering on for so long. So I don’t think it will come as a huge political or policy boost for the market either and this is probably the last price hike you are seeing before the next elections in any case if this is allowed to stay by the Left party.

So from a policy perspective, from a fiscal deficit perspective, from an inflation perspective and from an oil stock perspective I don’t see this being a major defining move in either direction. Therefore after the initial flurry is over, I think it might just be a non-event for the market.