 "Why fuel price hike is good and bad news for investors")
Sooner or later, a fuel price hike looks inevitable in India, and that carries both good and bad news for investors.
Raising fuel prices would improve the government’s fiscal standing, and give foreign investors some hope that India is getting serious about its woeful finances, especially if diesel prices see some kind of deregulation.
[caption id=“attachment_293425” align=“alignleft” width=“380” caption=“nflation may prove the bigger factor for bond markets. Reuters”]
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However, the trade-off would inevitably come in the form of higher inflation. Standard Chartered, for example, says a fuel price hike would push up WPI above 7 percent.
Inflation may prove the bigger factor for bond markets, dealers say, after yields have already moved towards December 2011 highs on expectations for a reduced scope of further rate cuts from the RBI.
However, oil stocks such as Indian Oil and Bharat Petroleum Corp are likely to rally once the move is announced given the obvious impact on profit margins.
As a result, the rupee could gain, tracking broader stocks on such a move, analysts say.
However, the bigger positive to the rupee would be in the form of a hopeful boost to foreign investor confidence, which has been badly rattled in recent days on policy paralysis in government.
Reuters