Will partial rollback of petrol price hike impact market?

‘The Monk who sold his Ferrari knew about the petrol price hike’

That’s the joke going around on social network sites. As the rupee continues to see-saw, this hike is certain to burn a hole in the Aam Aadmis pocket.
The outrage over the latest and steepest ever rise of petrol prices by Rs 7.5 per litre has left the common man fuming, hoping that a partial rollback is considered. But investor sentiment remains subdued over expectations that New Delhi might soon take the more politically fraught step of raising diesel prices.
The BSE Sensex and NSE Nifty surged nearly 2% in late trade following a rebound in European markets and the rupee. Banking & financials, oil & gas, telecom and metals stocks led the rally. The Sensex rose 274.20 points to close at 16,222.30 while the Nifty closed at 4,921.40, up 1.77%.
The Indian rupee rebounded quite sharply, trading at 55.88 as against the US dollar when our market closed, rising 12 paise over previous close of 56 a dollar and 51 paise from a record low of 56.38 (that it touched today). CLICK HERE to listen to today's market action with moneycontrol.com's Anisha Mappat..
For short-term traders holding long positions, Sudarshan Sukhani of s2analytics.com recommends they take partial profits at current levels of 4,900-4,950 as he sees it as a time to exit rather than build new positions. “If there is follow through on today’s gains that will be a good time to start building long positions again,” he adds.
India started 2012 with a bang and for nearly three months FIIs kept pumping money into the economy pushing our market higher. But now, the scale back that Indian equities have seen from 5,200 to 4,900 in less than a month has been quite severe.
The point to consider is that India is not the only BRIC (Brazil, Russia, India, China) country to be reeling under domestic macros. We are not the only market in the emerging market pack that has had this kind of a steep fall both in terms of the equity markets and the currency, says Nitin Rakesh, the managing director and CEO, Motilal Oswal AMC.
As the rumblings in the euro zone get louder all thanks to Greece, investors are content to hold a risk-off position which has led to the strengthening of the US dollar globally. Rakesh finds that our market has gone back into the zone of 4,600-4,800 that it was testing in the second half of last year.
Should this become the base, it should find some stability to hold onto which will see interest coming back in unless something drastically goes wrong with the global economy. In the interim we will continue to find things that are much more domestic in nature, which will drive sentiment and volumes, he adds. Diesel to Fuel Economy Next?
Market analysts are saying that the move by oil marketing companies (OMC) to hike the price of petrol is a better ‘late-than-never’ move. But the same voices also say that there is a lot more that needs to get done from New Delhi as the attention has turned to whether this move will help in taming India’s ballooning fiscal deficit and rising inflation.
Prices of the regulated fuels - diesel, LPG and kerosene - have been unchanged since June 2011. An EGoM (Empowered Group of Ministers Meeting) scheduled on May 25 is likely to decide if the government will raise prices of politically sensitive regulated fuels.
Rakesh hoped the Centre will do the right things when it comes to diesel and LPG but adds that kerosene is out of the question for now. The government seems to have at least laid the groundwork for the EGoM meeting and how they can bring diesel back in a step-by-step manner.
His expectation is they will probably hike some prices to maintain the parity even though it’s not going to be an easy political decision to make, but they will have to do it because of the deficit situation. Win-win for OMCs?
State-owned oil & gas producer ONGC benefitted the most in today’s trade, shooting up nearly 6%. However, shares of IOC and HPCL fell over 1% after an initial spike of 4%. Even BPCL came off its day's high to close 0.5% higher.
Prakash Diwan of Asit C Mehta Investment says the OMCs at least might have a good time on the bourses at best until June 1 when we may probably again see a revision in prices and at that time it could be a downward revision. The price of crude vis-a-vis the rupee is a combination that’s very tricky and unpredictable. So, he doesn’t think that OMCs are something where people would want to stay invested into with a longer-term prospective.
Oil companies lose about Rs 14 per litre on diesel, which is much more widely used than petrol, and a weakened government has been unable to push through a price rise in the face of political opposition, including from within the ruling coalition. Petrol is considered a low-hanging fruit, but further challenges will come when the government tries to take a stand on diesel, LPG and kerosene, because this is where the subsidies are larger.
According to a Nirmal Bang report, the steep petrol price hike could bring some respite to the financials of OMCs. But what is important is the intention behind the hike - is it meant to ease the financial stress on OMCs or is it an indicator of forthcoming bold decisions for other regulated petroleum products.
India is currently facing a double whammy of elevated crude oil prices and a sliding rupee and in such a state, without a hike in the prices of regulated petroleum products, the overall under-recoveries may touch Rs 2,000 billion (USD 36.36 billion) in FY13E compared to Rs 1,385 billion (USD 28.76 billion) in FY12.
I would like to end with another smart comment someone shared at work  - When the finance minister says ‘GDP’ will rise, will he mean - Gas, Diesel and Petrol? Chelsea Saldanha
chelsea.saldanha@network18online.com