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Shashi Ashiwal

Gloomy picture: Worried investors looking at the monitor as the BSE Sensex in Mumbai tumbled over three per cent last week. –

This week, the short-term weakness is likely to continue on lower volumes for the markets.

Hope of improvement in the economic fundamentals in the near future, however, is likely to provide support at lower levels.

The recent fall in commodity prices globally is causing pressure on profitability of the producer companies.

For example, steel prices internationally have eased by over 15 per cent in the recent weeks.

According to certain market experts, the fall across the global asset classes are causing sell-off in equities by foreign institutional investors in India too. In turn, this sell-off is depressing the rupee against the dollar.

Inflation management had earlier prompted the Government to restrict exports and encouraged imports by reducing duties. This has contributed, to an extent at least, to depreciation of the local currency against the greenback.

Is a paradigm change taking place again? Easing of commodity prices, including crude oil, is yet to show its positive impact on the equity market.

In the interim, the currency market has popped up a new problem.

Policy stances may be readjusted, but there may be a time lag.

The overarching slowdown in the developed economies is causing jitters across the markets and casting shadows on the prospect of margin expansion.

Investors are nervous because the storm shelters are few and far between.

Every market has its own darlings.

When they are in distress, markets get upset. Reliance Industries, if in perceived trouble, with its large number of shareholders, well-wishers among market players and weight in the benchmark index, can influence market sentiment in the short-term.

In a situation when the refining and petroleum margins are falling and the local currency continuing with its weakness despite intervention by the central bank, the real trouble, perhaps, lies elsewhere.

Market observers feel the investors may not like the Government move to limit the company’s options for LPG exports for an extended period of time. Reliance Industries is the largest producer of LPG in the country and after Reliance Petroleum’s expected operationalistion in December its clout would increase further.

However, the current profitability of Reliance Industries would not be affected if the Government extracts an extended commitment on LPG as the company does not export it and LPG prices in the international markets are not in great shape now.

This may be surmised on the assumption that the Government reimburses the ruling international price of LPG.

Reliance Industries then may have to forego a theoretical opportunity by abstaining from exports of LPG in future. But if it concedes this to the Government, it may create elbowroom on other products.

(Reponses may be sent to jayanta_mallick@thehindu.co.in)

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