Event_Update.pdf

7/30/2019 Event_Update.pdf

1/6RR, All rights reserved Page 1 of 6

*Two big implications of the hike:

One, it will add to inflationary pressures,

although perhaps not by much sincepetrol only has a 1.09 percent weight inthe wholesale price index.

Two, the petrol price hike, if not fol lowedby a price hike in diesel, will onlyreinforce demand for more expensivediesel engine cars over petrol ones.

*Steep Rs 7.5 increase in petrol prices isnegative for Maruti Suzuki India Limitedas almost 70% of the sales for thecompany come from petrol models.

*The latest petrol price hike increases thegap between petrol and diesel prices toaround Rs 25 per li ter.

*The revision in petrol prices comes as

the rupee hit an all-time low of Rs. 56.38against the dollar.

Event Update 24th May, 2012

ndia showing signs of stagflation:

Petrol prices have been increased steeply by Rs 7.50 a liter from

midnight. The increase was on the cards with the rupee continuing itsfree fall against the US dollar. The rupee fell to a record life low of 56

per dollar on Wednesday. State-owned oil companies have decided to

raise petrol price by Rs 6.28 per liter excluding local sales tax or VAT.

The hike translates into Rs 7.50 per liter in Delhi and is the steepest

ever. Petrol in Delhi currently costs Rs 65.64 a liter and after the

increase it will be priced at Rs 73.14 per liter. Oil companies had

already told the government that wanted to hike petrol price by at least

Rs 4 per liter. The government had decontrolled petrol price in J une

2010 but rates were last increased on November 4 last year. This

despite oil price rising by 14 per cent and 7 per cent fall in value ofrupee against the US dollar.

Price of diesel, kerosene and cooking gas were raised in J une 2011.

State-owned oil firms, who had in the fiscal ending March 31, 2012 lost

Rs 4,860 crore on petrol sales, are currently losing Rs 6.28 per liter on

petrol.

Post hike, spread between diesel and petrol prices is~

Rs.32.3/Ltrs in Delhi

EGoM is expected to meet tomorrow to discuss hike in Diesel andLPG prices. If implemented, it will be significantly positive for

OMCs and Upstream companies (OINL, ONGC and GAIL).

To the government's discomfiture, this incipient stagflation is also not

serving to reduce the pressures on the balance of payments front.

India had been recording trade and current account deficits that were

rather easily financed by the large capital flows the country had

attracted. But with international oil prices rising sharply, and a

combination of speculation and investor flight to safety increasing the

demand for imported gold, India's import bill rose sharply in the lastfinancial year.

In the event, despite exports having held their own in 2011-12, the

current account deficit has burgeoned. The result is weakness of the

rupee that now seems to have become the target of speculation,

resulting in a sharp downward slide in its value. A collapsing currency

is a sure negative signal for international investors, and can accelerate

their exit. A downward spiral is a possibility that therefore needs to be

pre-empted.

TM


2/6

RR, All rights reserved

onthly Inflation Updates

Page 2 of 6

What the petrol price hike indicates:

The steep petrol price hike could bring some respite to the financials of OMCs, but what is important is the intentionbehind the price hike is it meant to ease the financial stress on OMCs or is an indicator of forthcoming bold decisionsfor other regulated petroleum products. On regulated products, the under-recovery on diesel is Rs13.46/liter, keroseneRs31.49/liter and liquefied petroleum gas Rs480.50/cylinder. The prices of regulated petroleum products have beenunchanged since J une 2011 and a meeting of the EGOM (empowered group of ministers) is scheduled on 25 May 2012to take stock of the prices of regulated petroleum products.

Car Sales wil l be badly hurted :

We believe it will be negative for the automobile sector and the major impact of the petrol price hike would be visible inthe demand for small car passenger cars, which account for 60% of the domestic car industrys sales. Following thesteep increase in petrol price, we expect the sales of petrol cars to take a hit, thereby impacting their volumes in the nearterm. In the case of two-wheelers, we dont expect any significant pressure on demand because of their higher fuelefficiency. We believe the petrol price hike is negative for passenger car manufacturers having a strong presence in theentry-level segment, which is skewed towards petrol models. Market leaders in the passenger car segment such asMaruti Suzuki, Hyundai Motors and Tata Motors would be impacted the most because of the petrol price hike. In the caseof two-wheeler makers, we do not believe the petrol price hike will lead to any downward pressure on demand becauseof higher fuel efficiency offered by these vehicles.

Expectations for Diesel price Hike :

The government did not hike diesel price, which has further increased the already high differential between petrol anddiesel prices. Following the Rs7.54/liter hike in petrol price, the price differential between two fuels now stands at 44.1%from 37.7% earlier. Currently, diesel cars are witnessing strong demand due to the huge differential between petrol anddiesel prices, which is expected to strengthen further in the near term in the wake of the petrol price hike.

Political Opposition:

The Opposition has accused the government of choosing to make the announcement a day after the Budget Sessionended to avoid getting cornered in Parliament. "Petrol price hike is atrocious and unbelievable. The UPA government, on

its third anniversary, has given this gift of petrol price hike to the people and that too Rs. 7.50 per liter. This is unheard ofand unimaginable," said BJ P leader Prakash J avadekar. Even Lalu Prasad Yadav of the RJ D is opposing the decision.The State Government on Wednesday strongly opposed the steepest- ever hike in petrol prices and demanded itsimmediate rollback. Describing the Rs 7.5 hike per litre of petrol as unfortunate, Finance Minister Prafulla ChandraGhadei alleged that it would have far-reaching consequences. Stating that the common people will be hit hard due to thelatest hike as its affect will be maximum on the transport sector; the Finance Minister said that its impact on the economywill be disastrous. The number of times the UPA has affected hike in petrol prices has proved that it is not a governmentof aam aadmi, Ghadei said and alleged that it is a government of the rich. Meanwhile, the Biju Yuva J anata Dal (BYJ D)has announced an agitation against the petrol price hike. A massive dharna and protest meeting will be held in front ofthe Raj Bhavan demanding its immediate roll back. BYJ D president and MLA Sanjay Dasburma alleged that the hike wasthe costliest gift given by the UPA to the people during its eight-year rule. Dasburma has called upon the people of thestate to join hands to throw out such an anti-people government.

Are we depicting European picture?

It is here that the similarity with the European predicament is apparent. Countries in Europe accumulated large private orpublic debt as a means to driving growth, encouraged by the easy access to credit that proliferation of finance entailed.That seemed acceptable so long as growth was the norm. Borrowers were seen as being capable of meeting theircommitments, based not on additional borrowing but on income expansion. When the global crisis slowed growth orbrought it to a halt, this belief was challenged.

Thus sovereign default, which was earlier a developing country problem, became a possibility in the developed world, ifadditional credit to meet expenditures was not forthcoming. However, additional credit to help countries avoid defaultwas provided only on the condition that they opted for austerity. Cutbacks in government expenditure were expected toreduce deficits and release the wherewithal to finance future debt service commitments. This imposed huge burdens on

the people in the form of increased unemployment, reduced incomes and a collapse of social security outlays.

The outcome was contrary to expectations. Rather than reduce deficits and generate surpluses, the output contractionresulting from expenditure cuts reduced revenues, making it impossible for these countries to meet their deficit reductiontargets. A cycle of enhanced austerity, lower growth and worsening debt service capacity followed, with no solution insight. It is clear from this that in bad times countries need to get out of the slowdown-austerity-recession cycle by


3/6



Page 3 of 6

substantially increasing expenditures to restore growth and employment. This would, over time, also raise the revenuesto finance some of their debt commitments.

Though there are important differences between India and Europe, there are two similarities here that need to berecognized. The first is that India's fiscal deficit and debt to GDP ratios have been declared to be unacceptablyhigh by international finance. The government has also been overly sensitive to the perceptions of internationalinvestors because of the latter's large presence in the country. This explains the call for austerity. Catering tothe interest of global finance and allowing it to influence or determine policy not only increases economic

instability , but also induces an element of policy paralysis because of a reduction in the state's room formaneuver. Central to that paralysis is a self-imposed limit on spending resulting from a fear of raising resourcesthrough taxation and financing expenditures with borrowing. Second, a government afflicted by such paralysiswhen confronted with slowing growth or even stagflation, tends to adopt policies that trap the country in arecession. This has already occurred in Europe. It is a real possibility for India.

Signs of deeper worry

The rupee's record-breaking slide against the dollar last week seriously tests the resolve of policymakers to defend thedomestic currency in the face of an unholy combination of domestic and external factors. It is true that none of the factorspushing down the rupee is either new or unanticipated. Nor is India's predicament unique. Nearly all the currencies ofother emerging markets have declined in dollar terms. While the government has identified the Eurozone crisis and theincreased outflow of foreign institutional investment as being the principal causes, one has to look at the shortcomings ofits macroeconomic policies, especially those relating to the external economy in the context of an extremely uncertainglobal environment. Clearly a proximate cause such as the fast deteriorating Eurozone crisis has had the potential toexacerbate one of India's well known structural rigidities, the dependence on volatile capital flows to bridge the currentaccount deficit and support the balance of payments. The Eurozone crisis has heightened risk aversion, leading to aflight of capital from countries such as India to safe havens. Many other emerging market economies have lost out butIndia, having an unacceptably high current account deficit, is particularly vulnerable. Again, the crisis in Europe hascaused a dent in India's merchandise trade the EU has been one of India's important export destinations. Moreover,European banks are among the largest providers of short-term debt to Indian companies. Obviously, their losses inEurope will have to be at least partially met by pulling out of India.

It is clear that a combination of interdependent factors is contributing to the rupee's decline. A multi-faceted problemdoes not admit of simplistic solutions. For instance, the suggestion to use the country's still sizeable-forex reserves to

stem the decline is fraught with risks. The size of the reserves has been declining over the years. Experience in othercountries suggests that reserves are best used to even out violent fluctuations in the exchange markets, seldom todefend the home currency over a long period. The government has announced a few austerity measures. While theseare welcome, they are at best symbolic gestures. More effective measures should aim to check the trade and currentaccount deficits. Unfortunately, many of the factors contributing to the widening deficits are beyond the control of thegovernment. Oil prices are expected to remain sticky at the current high levels. The import bill is unlikely to come down inthe foreseeable future. On the other side, exports have faltered after a heady run during most of last year. The rupee'sfall is a symptom of a deeper economic malaise.

The way out, as clarified by economists with divergent inclinations, is to escape from this vicious cycle byexpanding spending, and finding ways other than expenditure contraction to address inflation or balance ofpayments difficulties. But that requires not only ignoring the demands of finance, but also countering itsspeculative maneuvers. In contexts like India, if recession hits, controls on the movement of footloose and

speculative capital are a must to give the government the required room for maneuvers. That is the lesson thegovernment must glean when seeing its own image in the European mirror.


4/6



Page 4 of 6

Disclaimer

RR Information & Investment Research Pvt. Ltd.47, MM Road J handewalan New Delhi-110055 (INDIA)Tel: 011-23636362/[email protected]

RR Research Products and Services:

Online Equity Calls during Market Hours (9:00 AM to 3:30 PM)

Online Commodity Calls dur ing Market Hours (10:00 AM to 11:30 PM)

Online Currency Calls dur ing Market Hours (10:00 AM to 5:00 PM)

Daily Morning Pack Equity Morning Bell Debt Morning Bell

Commodity Morning Bell Currency Morning Bell

Mid Session Market

Daily Market Review

Weekly Pack Equity - Weekly Debt - Weekly Commodity - Weekly Currency Weekly

Fundamental Research Global Market Analysis Economic Analysis Industry Analysis Company Research & Valuations Result Updates News Updates Events Updates

IPO / FPO Analysis

Mutual Fund Analysis

Insurance Analysis

Investment Monitor The complete monthly magazine design for Indian investors

Share Views wi th leading Media Houses

And many more

RR Research can also be viewed and downloaded from following websites:www.moneycontrol.comwww.valuenotes.comwww.reportjunction.comwww.capitalmarket.com

www.myiris.com

J oin us on face book: http://www.facebook.com/pages/RR-Research/209182015782971


5/6



Page 5 of 6

Disclaimer:Kindly read the Risk Disclosure Documents carefully before investing in Equity Shares, Derivatives or other instruments traded on the StockExchanges. RR would include RR Financial Consultants Ltd. and its subsidiaries, group companies, employees and affiliates. Theinformation contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way,transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior writtenconsent of RR. The information contained herein is obtained from public sources and sources believed to be reliable, but independentverification has not been made nor is its accuracy or completeness guaranteed. RR or their employees may have or may not have anoutstanding buy or sell position or holding or interest in the products mentioned herein. The contents and the information herein is solely for

informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe forsecurities or other financial and insurance products and instruments. Nothing in this report constitutes investment, legal, accounting and/ortax advice or a representation that any investment or strategy is suitable or appropriate to recipients specific circumstances. The securitiesand products discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investmentdecisions, based on their own investment objectives, financial positions and needs. P lease note that fixed deposits, bonds, debentures areloans/lending instruments and the investor must satisfy himself/herself on the financial health of the company/bank/institution before makingany investment. RR and/or its affiliates take no guarantee of soundness of any company or scheme. RR has/will make available all requiredinformation to the prospective investor if asked for in respect of any scheme/fixed deposit/bond/loan/debenture. RR is only acting as abroker/distributor and is not representing any company in any manner except to distribute its schemes. Mutual Fund Investments aresubject to market risks, read the offer document carefully before investing. Any recipient herein may not take the content in substitution forthe exercise of independent judgment. The recipient should independently evaluate the investment risks of any scheme of a mutual fund.RR and its affiliates accept no liability for any loss or damage of any kind arising out of the use of any information contained herein. Pastperformance is not necessarily a guide to future performance. Actual results may differ materially from those set forth in projections. RRmay have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. Theinformation herein is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located inany locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or

which would subject RR and its affiliates to any registration or licensing requirement within such jurisdiction. The securities and productsdescribed herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession thisdocument may come are required to inform them of and to observe such restriction(s). The display, description or references to anyproducts, services, publications or links herein shall not constitute an endorsement by RR. Insurance is a subject matter of solicitation.Kindly also note all the risk disclosure documents carefully before investing in Equity Shares, IPOs, Mutual Fund Schemes, InsuranceSchemes, Fixed Deposit schemes, Debt offers, Hybrid Instruments, or other instruments traded on Stock Exchanges or otherwise.Prospective investors can get all details and information from the sites of SEBI, IRDA, AMFI or respective Mutual Fund Companies,Insurance Companies, Rating Agencies, Stock Exchanges and individual corporate websites. Prospective investors are advised to fullysatisfy themselves before making any investment decision

NSE - INB 231219636, INF 231219636BSE - INB 011219632

For Risk factors, kind ly refers to Draft Red Herring Prospectus.

DRHP can be downloaded from http://www.sebi.gov.in/cms/sebi_data/attachdocs/1329208634536.pdf

About RRRR is first generation business set up in 1986. Shri. Rajat Prasad, a professional qualified CharteredAccountant, is the main founder. He is the architect of its growth and in the last decade has steered the group tobe a diverse and respected financial and Insurance Services Organization with nationwide presence with officesin more than 100 cities and a team of 800 Employees.

RR has the presence in all metro cities and towns across the length and breadth of the country. RR isheadquartered in New Delhi, Capital of India with regional offices in Mumbai, Ahmedabad, Baroda, J aipur,Chandigarh, Lucknow, Calcutta, Bangalore, Chennai, Noida and Dehradun. It has Associate offices in othercities and Locations totalling 600 locations & 100 cities. It has agent presence in over 500 cities across the

country. RR is the only Company in India which provides research based seamless service to its customersthrough own offices, franchisees and agents.

About RR ResearchRR Research provides unbiased and independent research in Equity, Commodity, Currency, Fixed Income,Debt Market, Mutual Funds, Insurance. The research team consists of more than 10 analysts, most of which areCAs and MBAs from premier business school with experience ranging from 0 to 10 years. The team is equippedwith state of the art analysis tools, software.

The research team is engaged in almost every activities of the capital market. In the fundament research front,the team is involved in Economic Analysis, Sectoral Analysis, Company Coverage and Updates. In the tradingfront, dedicated technical team is employed to provide online technical calls, trading tips, derivative strategies to

clients. The team is online during the market hours and anyone through our website can chat live with analystsand can solve any investment related query.

The team has extensive network of industry contacts and regularly attending analyst meets/ conference calls toget insight of the company. On regular basis, the team shares its view with leading electronic & print mediahouses.


6/6



Page 6 of 6