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Markets react to hike in fuel prices
June, 05th 2008

The stock markets reacted negatively to the Governments move to pass through the surging global oil prices to domestic prices on Wednesday. The Bombay Stock Exchange benchmark 30-share sensitive index (Sensex) dipped by 447.77 points or 2.81 per cent to close at 15514.79, the biggest fall in two months (It registered a loss of 489.43 points on April 4). All sectoral indices closed in the negative territory, led by realty, metal, power, oil and gas and auto.

The Sensex has plunged by 900.78 points in the last three trading sessions from 16415.57. It lost 5692 points or 27 per cent from its all time high of 21206.77 recorded on January 10. However, it is still up by 705 points or 5 per cent from its recent low of 14809.49 recorded on March 17. The 50-share S&P CNX Nifty also fell by 130.30 points or 2.76 per cent to 4585.60 on Wednesday.

The market was expecting an increase in petroleum product prices from the Central Government. However, the final increase announced by the Government was higher than the market expectation. Investors believe that this hike will further increase the inflationary pressure, which is already hovering at higher levels.

In view of the sustained rise in international crude oil prices, the government announced changes to the prices of petroleum products as well as to the indirect tax structure.

As a result of increased burden of oil bonds, governments off-budget liabilities would increase to 1.80 per cent of gross domestic product (GDP). Inflation is expected to increase by 95 basis points on account of direct and indirect effects, Crisil stated in an analysis on Wednesdays petroleum products price increase.

In addition to its impact on fiscal, the revision in petrol, diesel and LPG prices will push up inflation by 95 basis points taking into account direct and indirect impact. Out of this, the direct impact will be 51 basis points with the highest contribution coming from the hike in the LPG price. The indirect impact which would be felt over the next few months would be 44 basis points, it added.

European markets were weak on Wednesday as the key stock indices of France, Germany and U.K. were down by more than one per cent. However, Asian markets ruled mixed. While Nikkei 225, Taiwan weighted and Seoul Composite moved up, Singapore Straits Times, Hong Kongs Hang Seng and Shanghais Composite were down.

On the BSE, the midcap index lost 149.93 points or 2.29 per cent at 6397.37 and small cap index 162.03 points or 2.06 per cent at 7720.26. A much broader index, BSE-500 lost 195.17 points or 3.11 per cent at 6087.93.

Foreign institutional investors were sustained net sellers in equity. They sold shares worth Rs. 1,020.70 crore in equity on June 3.

The BSE recorded a turnover of Rs. 6,461.80 crore on Wednesday compared to Tuesdays Rs. 5,252.69 crore.

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