Sensex declines 0.8% on petrol price hike; oil firms’ shares rally

Sensex declines 0.8% on petrol price hike; oil firms’ shares rally

Mumbai: Indian shares snapped a three-session winning streak and shed 0.8% on Wednesday as a rise in fuel prices sparked concerns over inflation, while shares in state-run oil marketing companies (OMCs) rallied.

Weak world equities also weighed on sentiment.

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Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd raised petrol prices by about 5.6% due to surging global crude prices. Shares in these companies rose between 1.7% and 4.3%.

The Reserve Bank of India (RBI) meets on Thursday to review its monetary policy in the light of still high inflation.

While it is widely expected to refrain from raising rates after six increases since March, rising energy and other commodity prices make its target of cutting headline inflation to about 5.5% by the end of March harder to achieve.

The 30-share BSE Index dropped 0.76%, or 151.42 points, to 19,647.77, with 22 of its components losing ground.

“Inflation figures released yesterday showed it was easing. But the news flow today clearly points to a rise in days to come," said Sandip Sabharwal, CEO of portfolio management services at brokerage Prabhudas Lilladher.

“RBI may not hike rates tomorrow, but the comments are likely to be hawkish."

Sabharwal said the long-term story for Indian equities holds good and expects the Sensex to scale 25,000 points by the end of 2011.

“Equities as an asset class has proved rewarding and emerging economies are definitely attractive."

More than two shares declined for every share that advanced in the broader market in a relatively moderate volume of 348 million shares.

The benchmark had risen 2.9% in the previous three sessions and is up 12.5% in 2010, driven by foreign fund investment of $28.4 billion since the start of January.

Shares in India’s Hero Honda Motors fell 5.4% to 1,621.30, its lowest close in more than 10 months, after a TV channel reported the board of its Indian partner has approved the termination of the joint venture with Honda Motors.

“It looks like the discount at stake buy will be covered by high royalty payments. People do not like this," said Ambareesh Baliga, vice-president of Karvy Stock Broking Ltd.

Hero Honda shares have shed 17.8% so far in December on reports over Honda’s pullout.

Banking shares led the decline, with the State Bank of India dropping 3.5%. The top lender has paid 1,850 crore as advance tax for the October-December quarter compared with 1,795 crore a year ago, an income tax department source said.

Leading private lenders ICICI Bank and HDFC Bank dropped 3.7% and 3.3%, respectively.

SKS Microfinance, the country’s only listed microlender, dropped 3.2% after Andhra Pradesh state approved a legislation by ratifying an earlier ordinance that has curbed operations by the lenders to the poor.

The southern state is the single biggest market for the microfinance sector.

Reliance Communications climbed 0.9% on news the second-largest mobile phone carrier was set to get a $1.9 billion, 10-year, loan from China Development Bank that media reports said will be used for refinancing some of its existing debt and for gear purchases.

The 50-share NSE index declined 0.9% to 5,892.30 points.

A downbeat assessment of the US recovery from the Federal Reserve weighed on global equities, while European shares and the euro came under pressure from a threat to downgrade Spain’s debt.

The FTSEurofirst 300 stock index and MSCI’s all-country world stock index shed half a percent each.


Graphic by Paras Jain/Mint