Jan 19, 2013 04:53 PM IST | Source:

See mkt pricing in fuel cost hike & blue chip cos' results

Today is a big day. Last evening lot of important changes happened on fuel prices, which the market partially priced in yesterday, but may also react to this morning.

Today is a big day. Last evening lot of important changes happened on fuel prices, which the market partially priced in yesterday, but may also react to this morning. Ofcourse today is the biggest day of this earnings season with Reliance, Wipro, Indian Tobacco Company (ITC) and Housing Development Finance Corporation (HDFC) Bank all reporting today. So, both from an earnings perspective, a bit of global cheer and a reform's perspective this is a very important morning of trade that we are heading into today.

There was some traction coming on the back of all the news flow, but it seems like that because day before we had a bit of a slip. Yesterday, however, the market managed to claw back, partly because the global scene is fairly good now. There is still some continuing risk-on that one can see, flows are intact. We haven't had too much bad news barring the odd blip from Hero MotoCorp or Exide Industries from the earning season so, earnings have been okay. The market could ofcourse see this news coming on the fuel price front. So, we did have a dip day before to 6,000 and we have managed to come back to 6,040. It looks like we will get back and reclaim all the lost ground this morning as well. Market seems to be in a good place right now with sectors like oil and gas providing leadership and global markets being okay. So, there might yet be volatility but for the morning we are okay.

I think the market saw that something was coming. There have been certain changes, which are very good. Diesel is selling at market rates to bulk consumers that cut down the overall bill by Rs 13,000 crore for them. To that extent, subsidy can be reduced and that’s a materially important change. I think the grey area is probably more along the lines of what they can do on diesel on a monthly basis.

I know they have started with a small step of 45 paise and left it open for the oil marketing companies (OMCs). However, all of us know what happened the last time the price of petrol was officially deregulated and left to the OMCs. OMCs did nothing because there was some pressure from the government, which they would not say openly, which prevented them from raising even petrol prices. Diesel is far more sensitive. So while it is a small step in the positive direction, we need to see action on the ground over the next few months on whether the OMCs are actually passing down diesel price hikes and slowly closing the gap with market price. Till we don't see evidence of that, I think the market will hold its judgement on it. That’s the most important thing of this interplay between the government and the OMCs about diesel prices despite some seeming freedom given to them to raise by small tokens.

I think it is still very ambiguous and it is a grey area in my book. I would think that the market would do well not to price that in today expecting diesel prices will go up every month from hereon till the whole gap is bridged. I think that would be a premature reaction on the market's front. But to the extent that a significant step on bulk consumers has been taken, I guess there is little bit of relief, particularly in the upstream companies where subsidy burdens come down, would be in order today.

I think we will start the day above 6,050 once again. The picture has been a bit unclear over the last couple of days because we seemingly had a breakout. We went back to 6,000 once again. Yesterday, on the back of the news we had come back to 6,050. Today we will try and extend this range. I think slowly, one by one the good bits of news are coming in and they are getting priced in by the market. So, the diesel price news, which was a potential trigger for the market will probably have been partly priced in yesterday and will get fully priced in today. It will probably nudge the Nifty a bit towards 6,100 and  then will come the big results.

Today, quarter of the Nifty’s weightage reports and Reliance Industries, ITC etc will also price in their results by the end of the day or by Monday. So, you are just beginning to ask yourself what is the next trigger which takes the market beyond 6,100 and keep it there in a durable way. We need to see continuing risk-on in global markets for that to happen because after this weekend, it is only the 29th, on which there has been some debate on how much the Reserve Bank of India (RBI) can move. Partly, the bond yields have also come back. So, that is the last big trigger for the market in the next 15-20 days which could take the market higher from where we are right now. We can have a thrust towards 6,100-6,150 over the next few days but how to approach it would be nuanced by whether there are more positive triggers in the offing for the market after the number which have played out already.

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