Crude oil prices may drive market sentiment

Crude oil prices may drive market sentiment

Market is now on rampage tracking positive advices from Union Budget 2011-12. In last two days sensex has gained over 700 points. But there is still an uncertainty over current rally due to fears of another hike in interest rates, widening inflation, and continuous rise in crude oil international prices. In all these bearish factors most heartening factor is mounting crude oil prices.

Currently Brent and soft crude oil prices in international market are hovering over $115 and $100 per barrel and persistent geo political crisis in Middle East especially in Libya can prompt prices in near term up to a high of $120 and $ 110 per barrel. In these circumstances Indian oil marketing companies will have to increase petrol prices up to Rs 5 per litre, which may propel food inflation at new high and will make room for Reserve bank of India for another rate hike in its mid quarter review policy in march 2011.

According to different reports, in Libya per day (bpd) of crude oil production which was at 1.6 million barrels before crisis has been halved now.

Also, rising crude oil prices will increase current account deficit as India imports over 70 percent of its petroleum consumption. India's current account deficit representing the difference in inflows and outflows of foreign exchange, barring capital movements has been projected at 3.5 percent of the GDP for the fiscal year 2010-11 as compared to 2.9 percent of the GDP in fiscal year 2009-10.

Higher level of crude oil prices at international level may also pressurize government for giving green signal to hike in diesel prices. It is to be noted that diesel price deregulation is now under consideration and final decision is still awaited. But a cut of over Rs 14, 000 crore subsidy on petroleum products in Budget 2011-12 is giving clear signals that the government this year may give green signal to diesel price deregulation.

As per analyst, last two days' rally in market is unlikely to continue further as all macro economic factors are still lagging behind and dragging sentiments down. Not only macro economic factors but uncertainty looming over major scams like 2G spectrum allocation, ISRO Devas deal and black money had been more or less responsible for dampening sentiments in last 2 months is yet to be resolved.

Current boom in market has not come only due to negation of extra excise duty in Union budget but firm global trends mostly in Asian markets along with positive export, core infrastructure and auto sales data also helped sentiments to recover, analysts added.

Output of six core infrastructure industries increased by 7.1 percent in January as against 6.1 percent in December. In line with core infrastructure, exports for January also posted a splendid growth of 32.4 percent year on year to $20.6 billion. Besides auto sales for February reported strong numbers while manufacturing PMI for February reached the highest level in 3 months to 57.9 vs. 56.8 in January.

Technical analysts also maintain that market may see some correction in near term and most probably it may move in range of 17, 500 to 19,000.

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