SHORT TERM EXCITEMENT ON OMCs
Dear Friends,
It has been a long time since I posted an article in my blog. The sudden change in my job and return to India from Saudi Arabia and other committments at home kept me busy.
Like I have written in my last article dated 27th March, the Indices are going nowhere but 5-7% up and down for the past 9 months. Of course individual stock stories are playing out nicely either on corporate/sector developments or on manipulation.
Last week, the UPA Govt mustered all its courage to announce a full decontrol on petrol and a partial decontrol on diesel. Kerosene and LPG prices were hiked but they will continue to be under Govt control.And predictably,the famous media channels and their anchors/analysts gave too much hype about the same. on top of their euphoric voices, they mislead the Investors by saying that any reduction in Global oil prices will be beneficial to them. I fail to understand how???
Let us first analyse the issue clearly:
1. The decontrol is NOT total and Govt has retained the right to intervene anytime whenever it feels that the global oil prices have gone up TOO HIGH(which is highly subjective)
2. While the OMCs(OIL MARKETING COMPANIES) should reduce the selling prices when there is a fall in crude prices, they can not increase them beyond a level due to various factors like Govt intervention, inflation and others.
3. The increase in prices or the partial decontrol only changes the cash flow position of the OMCs and not the profitability. Previously the shortfall in prices were met by the Govt as OIL BONDS which these companies were showing as revenue. Now they are replaced by market prices. At the most, they will have some savings in their interest and administrative costs. Thats all.
So I dont understand, how these companies will be benefitted when there is a fall in global crude prices. Of course, any reform process will have a long term benefit of reducing the Budget deficit and so looked upon as positive by long term investors, be it FIIs or others. For the short term a 10-12% rise in the stock prices,more than reflect the positive sentiments, which has already happened in the last couple of days. So be causious of buying at these levels as the global markets are sinking.
I will post a detailed article on the global market situation during the weekend. Take care. Happy Investing
It has been a long time since I posted an article in my blog. The sudden change in my job and return to India from Saudi Arabia and other committments at home kept me busy.
Like I have written in my last article dated 27th March, the Indices are going nowhere but 5-7% up and down for the past 9 months. Of course individual stock stories are playing out nicely either on corporate/sector developments or on manipulation.
Last week, the UPA Govt mustered all its courage to announce a full decontrol on petrol and a partial decontrol on diesel. Kerosene and LPG prices were hiked but they will continue to be under Govt control.And predictably,the famous media channels and their anchors/analysts gave too much hype about the same. on top of their euphoric voices, they mislead the Investors by saying that any reduction in Global oil prices will be beneficial to them. I fail to understand how???
Let us first analyse the issue clearly:
1. The decontrol is NOT total and Govt has retained the right to intervene anytime whenever it feels that the global oil prices have gone up TOO HIGH(which is highly subjective)
2. While the OMCs(OIL MARKETING COMPANIES) should reduce the selling prices when there is a fall in crude prices, they can not increase them beyond a level due to various factors like Govt intervention, inflation and others.
3. The increase in prices or the partial decontrol only changes the cash flow position of the OMCs and not the profitability. Previously the shortfall in prices were met by the Govt as OIL BONDS which these companies were showing as revenue. Now they are replaced by market prices. At the most, they will have some savings in their interest and administrative costs. Thats all.
So I dont understand, how these companies will be benefitted when there is a fall in global crude prices. Of course, any reform process will have a long term benefit of reducing the Budget deficit and so looked upon as positive by long term investors, be it FIIs or others. For the short term a 10-12% rise in the stock prices,more than reflect the positive sentiments, which has already happened in the last couple of days. So be causious of buying at these levels as the global markets are sinking.
I will post a detailed article on the global market situation during the weekend. Take care. Happy Investing
Labels: stock market - indian and global
posted by manipayal @ 7:02 PM
0 comments
