The fuel price hike that happened was factored in by the market itself. The market can now pick up the positive signal from the government, which showed some courage to increase prices. There is no major upside in the market till there are fresh positive triggers. The macro economic picture does not look as bad. The macro has not soured as much as it is being made out to be. The hike in fuel prices acts as a pacifier to help oil marketing companies. Inflation will be pushed higher, only by 40-50 bps.
People have been harping about oil price hike and its effect on the economy and the negative impact thereby leading to a rise in interest rates. However, everybody seems to have forgotten that the government has gone on record to say that this year India is likely to have a bumper wheat crop. There is already an excess of wheat procurement of about 20 million ton. Even on the Global level, after two years of successive drought in Australia, there is a good possibility of seeing a bumper crop from there as well. The next likely threat for the market, following the post oil inflation, is food inflation. However, even that is going to be taken care of, because rice production is likely to be higher by 6-7%. Let me now inform you that for the first time after three years, Brazil’s current account deficit is going to turn into a current account deficit. Interest rates have started moving upwards but Brazil continues to attract tons of FII money. We must understand that the performance of the stock market, need not necessarily be driven by economic fundamentals and Brazil is a classic example.
Wheat prices in India have fallen 50% from February onwards. Similarly, Soyabean and Sugar has come off any where between 15 to 25%. If you feel that oil inflation is certainly going to stay here for a while, then I must add here by saying that food inflation is looking southwards. So, over all things are good.