Stay away from investing in equities for the time being. Stock markets are not expected to touch their previous highs in the short-term as FIIs are turning net sellers, said analysts. Foreign investors were net sellers to the tune of Rs 1198.8 crore on Wednesday, according to provisional figures available on NSE. Though the decision to hike oil price led to a small recovery in the share markets on Wednesday, it was short lived as concerns about high level of oil prices and rising inflation pulled the prices down. BSE Sensex closed the day 447 points lower at 15514.79 and the Nifty at 4585.60, down 2.76 per cent.
“Markets would not be in a hurry to go back to previous highs. It is unlikely that we could rise much higher,” said Hitesh Agrawal, head of research, Angel Broking.
Analysts feel that a steeper price cut would have had a positive impact. “The market expected a steeper price hike and that would have helped. The excise and customs duty cut along with oil bond is only going to hit the government's fiscal status and the market has reacted negatively to it. The market wants the money to be recovered from the end user which is the case in most of the other nations,” said DD Sharma, Sr. vice president, retail equity, Anand Rathi Securities.
Rising Inflation is also is a worrying factor. Experts feel rising prices could lead to political instability. “Reality today is that inflation could go above 9 per cent and the worry about political implications of the price hike,” said Andrew Holland, chief administrative officer and head of research, DSP Merill Lynch. As per credit rating agency CRISIL’s estimates, inflation would go up by 0.95 per cent due to the oil price hike.
Foreign investors already reeling under global credit crisis and fall in stock prices took a negative view on the reduced government earnings for the year due to the customs duty cut on petro products. Revenue loss for the government on duty cuts would be Rs 22,000 crore.
Oil and gas stocks had a mixed day, as some stocks moved up in the morning on expectations of price hike but moved down sharply after the announcement. ONGC was the only gainer at Rs 882 (5.31 per cent). “Today’s announcements are revenue neutral for ONGC and so the stock bounced back and it is also neutral for Reliance,” said Dikshit Mittal, research analyst, Religare Securities.