India to Lift Petrol and Diesel Prices

123jump.com Staff
26 May, 2008
New York City

Asian key indices fell, as investors feared elevated inflation numbers and the US economic recession possibility to seriously dent consumer demand in the region''s biggest export market. Indian government is considering decontrolling petrol prices, a move that may see rates increased by 16-17 rupees a litre, but diesel will continue to be sold at a subsidized price.

[R]10:00AM New York, 7:30PM Mumbai - Indian shares opened lower as weak Asian market dampened the market sentiment.[/R]

India Market Update

The benchmark index Sensex declined on Monday, extending last week''s steep losses with banking, metal and capital goods stock leading the fall. Weak Asian cues also weighed on the markets.

Asian key indices fell, as investors feared elevated inflation numbers and the US economic recession possibility to seriously dent consumer demand in the region''s biggest export market.

Indian government is considering decontrolling petrol prices, a move that may see rates increased by 16-17 rupees a litre, but diesel will continue to be sold at a subsidized price.

The Reserve Bank of India governor Yaga Reddy said India''s fiscal deficit continues to be high and pressures on the shortfall are not reflected in the data.

Market Sentiment

After Monday trade, the 30-share BSE Sensex was lower at 1.8% or 301.14 at 16,348.50 levels. On the National Stock Exchange, the broader based S&P CNX Nifty fell 1.5% or 71.5 at 4875.05.

Of the BSE traded shares, 667 shares gained, 2,043 shares declined and 48 shares remained unchanged.

Cairn India was the most active stock on the BSE with the highest turnover of 180.52 crore rupees followed by Reliance Industries, Reliance Capital, Bajaj Auto and Reliance Power.

Gainers and Losers

Bharti Airtel gained 3.4% at 863.15 rupees after the company announced that it has decided to disengage from the ongoing talks with the South African telecom firm MTN, to explore the possibility of a merger between the two emerging markets telecom giants .

Jaiprakash Associates was down 5.6% to 224.40 rupees, Ambuja Cements fell 5.4% and Maruti Suzuki declined 3.8% to 759.85 rupees.

Banking shares traded lower. Federal Bank declined 6.1% to 221.95 rupees, Kotak Mahindra Bank lost 6% to 658.05 rupees, HDFC Bank fell 2.6% to 1,347.45 rupees and State Bank of India was 2.3% lower to 1,537.70 rupees. ICICI Bank declined 4.3% to 826.70 rupees. Bharat Heavy Electricals lost 5.2% to 1,656.10 rupees.

Reliance Companies Update

Reliance Industries fell 1.2% to 2,524.85 rupees. Reliance Communication lost 5.1% to 543.20 rupees on news reports that the company has entered into negotiations with South Africa''s MTN group for a possible merger after MTN''s merger deal with Bharti Airtel collapsed.

Government to Deregulate Petrol Prices

Government is considering decontrolling petrol prices, a move that may see rates being increased by 16-17 rupees a litre, but diesel will continue to be sold at a subsidised price.

The continued rise in crude prices that reached an all time high of J$135 a barrel last week has forced government to look for options to save state-run firms, which expect a revenue loss of 200,000 crore rupees this fiscal on sale of petrol, diesel, domestic LPG and kerosene.

Currently, petrol is being sold at a loss of 16.34 rupees a litre and diesel at 23.49 rupees per litre. Deregulating petrol price would mean that its prices would move in tandem with international prices.

The move is being considered after Finance Ministry declined Petroleum Ministry''s request for lowering customs duty on crude oil to zero from 5% and that on petrol and diesel to 2.5% from the current 7.5%.

Oil Ministry had also asked for lowering of excise duty on the two fuels but Finance Ministry is not obliging.

Petrol has a negligible impact on inflation and so even if it is deregulated it would not contribute the 3-and-half year high inflation rate of over 8%.

Diesel, on the other hand, is used by transport industry and replicating the same for the fuel would have cascading effect on inflation. However, deregulating petrol would lower the revenue losses by just 20,000 crore rupees. Half of the current estimates are on account of diesel rates.