Weekly Report - May 24 2008

Crude oil and inflation worries have been playing party poopers over the past several weeks. This trend is unlikely to change for a while, which will in turn keep investors edgy. On local front, the Government is under pressure to consider a hike in retail fuel prices. Whether it actually materialises or not remains to be seen as the Left parties have already issued a warning to the Congress coalition. Still, given the huge losses being suffered by public sector oil marketing companies, the Government will have to workout some way of resolving the crisis. A hike, howsoever small will push up inflation, which crossed 8% in the week ended March 15. On the flip side, if the Government is unable to hike fuel prices, the oil PSUs will be hit further.

The Government finds itself in a very tough situation and it will take a Herculean task for it to get out of it. Internationally, crude oil will remain the bugbear for markets across the globe. It will require a sharp drop in oil prices for the markets to regain their footing. Predictions from top global brokerages are not encouraging. So, one must brace for a bumpy ride in the near term. FIIs remaining net sellers is another cause for concern as is the weakness in the rupee (not for exporters though). Next week, we will have the F&O expiry, which will increase volatility in the market. The US market is shut for a holiday on Monday. The market is likely to be choppy with a negative bias.