Markets under the shadow of inflation

Worries over the monsoon are waning with most parts of the country getting good rains last week. But this respite seems to be short-lived. S...

Worries over the monsoon are waning with most parts of the country getting good rains last week. But this respite seems to be short-lived. Stock markets are now getting jittery over soaring inflation and crude oil prices. The possibility of a rise in interest rates is also weighing heavily on the market sentiment.’Oil prices concerns would continue to influence the sentiment in the coming weeks. US light crude prices hit a fresh record of close to $45 a barrel on Friday. With international oil prices close to $45 a barrel, India’s import bill for oil is bound to go up significantly, which has the potential to disturb government finances.

Says an analyst with an investment firm, ‘‘Oil prices are crucial for the Indian economy, which imports about 70 per cent of its crude requirements. Oil price may go up further towards the winter on rising US demand. Rising oil prices may further add to the domestic inflation, which has crossed the 7.50 per cent levels.’’ This is set to rise further as the petroleum price hike will be factored in only this week.

‘‘Inflation is now the most worrying factor for the stock markets. If the government fails to control it, the entire euphoria from the markets will evaporate,’’ says Motilal Oswal, chairman, Motilal Oswal Securities Ltd.

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Analysts now fear that the interest rates may rise following a sharp rise in inflation in the last couple of months. Corporate profits may decline following higher interest rates and subsequent fall in demand. On top of this, US Fed is likely to increase rates further. This may affect FII inflows as foreign investors would stay back with the rise in returns at home.

But the thumping success of the TCS mega public offering is a positive sign for the market. Also the progress of monsoon is expected to lift stocks in the monsoon-dependent sectors like automobile, cement and fast moving consumer goods (FMCG).

While the revival in monsoon helped the sentiment, the overall gains of the market were limited last week on account of surging international oil prices and worries over rising inflation. The 30-share BSE Sensitive index (Sensex) ended with a gain of 26.67 points, or 0.51 per cent, last week at 5,196.99. The broader NSE S&P CNX Nifty index ended with a marginal gain of 1.10 points at 1,633.40.

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