Govt, RBI can expect some relief from inflation, say experts.
Companies and policy makers would be relieved at seeing the steep fall in commodity prices in the last one week.
While the price of silver has slipped 30 per cent, crude oil, lead, nickel and copper have fallen 7-12 per cent. (See table).
Experts said the trend could continue and ease pressure on the government to raise petrol/diesel prices, lowering the pressure on inflation.
“The high level of commodity prices was not warranted as most global economies are not going strong. The rise was mainly due to excess liquidity. The correction will bring relief to policy makers and companies,” said D K Joshi, chief economist, Crisil.
RBI has been concerned over commodity prices. “Global commodity prices, which have surged in recent times, are at best likely to remain firm, and may as well increase further over the course of the year. This suggests that higher inflation will persist, and may indeed get worse,” it said in its policy statement on May 5. It increased key rates by 50 basis points to control inflation.
However, the last week’s fall has given hope of an improvement in the macroeconomic situation. Companies, which have been battling higher raw material costs, are also expecting relief.
“The fall in prices brings relief to companies and will help them manage spiraling raw material costs. It will also support the equity market. The government has not passed on the burden of crude oil prices to consumers since the level of $80-85 a barrel. The recent fall will reduce pressure on the government,” said Nilesh Shah, president, corporate banking, Axis Bank.
The fall was triggered by the Chicago Mercantile Exchange’s move to raise margins on silver. This led to a 30 per cent fall in silver prices in a week and raised fears that the margins on other commodities could also be increased. The rally in the US dollar, which rose 3.04 per cent against the euro from $1.49 to $1.45, aggravated the fall, as dollar and commodity prices have an inverse relation.
The Reuters-Jefferies CRB index, a global benchmark for commodity prices, has lost 5.64 per cent since last Friday and 6.1 per cent since Monday, one of the sharpest falls since July 2008.
“The fall is best viewed as the negative impact of high commodity prices on consumption, especially of oil, slowing economic recovery in the US, and a period of relative softness in China’s demand for some key commodities such as copper and soybean,” a Barclays Capital’s Singapore-based analyst told Business Standard.
Commodities have rallied sharply in 2011, led by silver, copper and crude oil. Investors flocked to these commodities as a refuge from the dollar, which was falling because of weak fundamentals in the US and liquidity infusion by the Federal Reserve.
“The selling in commodities is due to return of the risk appetite and this leaves some room for a further fall,” said Gnanasekar Thiagarajan , director, Commtrendz, a risk advisory firm.
Oil fall triggers stock rally
The fall in crude oil prices had a positive impact on the stock market on Friday. The 30-share Bombay Stock Exchange (BSE) Sensex gained 1.69 per cent, or 308 points, to 18,518.81. The rally was led by banks and automobile and IT companies.
The stocks of all three listed airlines — Jet Airways, Kingfisher and Spice Jet — rose.
Jet Airways closed 11.87 per cent higher at Rs 491.55 on BSE. It rose 13.56 per cent to Rs 499 intra-day. Spicejet surged 10.72 per cent to Rs 44.40.
Kingfisher jumped 10.46 per cent to Rs 44.35.
Fuel accounts for over 40 per cent of an airline’s operating cost.
“The rally in aviation stocks will continue as long as oil prices continue to be low. Indications are that oil prices will fall further because of appreciation of the dollar and a possible weakening of demand in Europe because of rising unemployment,”’ said V V L N Shastry, country head, Firstcall India Equity.
Metal producers Sterlite Industries and Hindalco fell 1.2 per cent and 0.1 per cent, respectively, as base metal prices in London fell to a five-month low.
Companies and policy makers would be relieved at seeing the steep fall in commodity prices in the last one week.
While the price of silver has slipped 30 per cent, crude oil, lead, nickel and copper have fallen 7-12 per cent. (See table).
Experts said the trend could continue and ease pressure on the government to raise petrol/diesel prices, lowering the pressure on inflation.
“The high level of commodity prices was not warranted as most global economies are not going strong. The rise was mainly due to excess liquidity. The correction will bring relief to policy makers and companies,” said D K Joshi, chief economist, Crisil.
RBI has been concerned over commodity prices. “Global commodity prices, which have surged in recent times, are at best likely to remain firm, and may as well increase further over the course of the year. This suggests that higher inflation will persist, and may indeed get worse,” it said in its policy statement on May 5. It increased key rates by 50 basis points to control inflation.
However, the last week’s fall has given hope of an improvement in the macroeconomic situation. Companies, which have been battling higher raw material costs, are also expecting relief.
“The fall in prices brings relief to companies and will help them manage spiraling raw material costs. It will also support the equity market. The government has not passed on the burden of crude oil prices to consumers since the level of $80-85 a barrel. The recent fall will reduce pressure on the government,” said Nilesh Shah, president, corporate banking, Axis Bank.
The fall was triggered by the Chicago Mercantile Exchange’s move to raise margins on silver. This led to a 30 per cent fall in silver prices in a week and raised fears that the margins on other commodities could also be increased. The rally in the US dollar, which rose 3.04 per cent against the euro from $1.49 to $1.45, aggravated the fall, as dollar and commodity prices have an inverse relation.
The Reuters-Jefferies CRB index, a global benchmark for commodity prices, has lost 5.64 per cent since last Friday and 6.1 per cent since Monday, one of the sharpest falls since July 2008.
“The fall is best viewed as the negative impact of high commodity prices on consumption, especially of oil, slowing economic recovery in the US, and a period of relative softness in China’s demand for some key commodities such as copper and soybean,” a Barclays Capital’s Singapore-based analyst told Business Standard.
Commodities have rallied sharply in 2011, led by silver, copper and crude oil. Investors flocked to these commodities as a refuge from the dollar, which was falling because of weak fundamentals in the US and liquidity infusion by the Federal Reserve.
“The selling in commodities is due to return of the risk appetite and this leaves some room for a further fall,” said Gnanasekar Thiagarajan , director, Commtrendz, a risk advisory firm.
Oil fall triggers stock rally
The fall in crude oil prices had a positive impact on the stock market on Friday. The 30-share Bombay Stock Exchange (BSE) Sensex gained 1.69 per cent, or 308 points, to 18,518.81. The rally was led by banks and automobile and IT companies.
The stocks of all three listed airlines — Jet Airways, Kingfisher and Spice Jet — rose.
Kingfisher jumped 10.46 per cent to Rs 44.35.
Fuel accounts for over 40 per cent of an airline’s operating cost.
“The rally in aviation stocks will continue as long as oil prices continue to be low. Indications are that oil prices will fall further because of appreciation of the dollar and a possible weakening of demand in Europe because of rising unemployment,”’ said V V L N Shastry, country head, Firstcall India Equity.
Metal producers Sterlite Industries and Hindalco fell 1.2 per cent and 0.1 per cent, respectively, as base metal prices in London fell to a five-month low.
