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Aarati Krishnan

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As the markets open for trading this week, the cup of woes for Indian stock investors is surely brimming over: Double-digit inflation, the possibility of further interest rate hikes, a fiscal situation which is being bent out of shape by oil prices, the possibility of a political fracture over the nuclear deal.

To top it all, weak global cues — with the Dow shedding over 200 points at the close last week!

The tentative recovery forged by the Sensex in mid-May, when it ventured past the 17,000 mark, has been decisively nipped in the bud in recent weeks.

The market’s failure to break away from its recent losing streak isn’t surprising, given the deluge of negative news flow on the economy and thus, corporate earnings, in recent weeks.

Spiralling commodity prices represent a potent threat to earnings growth for India Inc in the coming quarters.

Companies in sectors ranging from capital goods to automobiles are already feeling the heat on their margins from rising input costs and slackening growth over the past two quarters.

With inflation at a 13-year high, after the recent fuel price hikes, confidence that all is well with the Indian consumer is also beginning to wane.

High inflation in food and fuel prices raises concerns that the slowdown in demand, now restricted to big ticket purchases such as cars and homes, may also trickle down to other consumer goods.

With inflation so high on the government’s radar, relief on interest rates for India Inc also seems a good way away.

With mounting pressure on the government to curb runaway prices, market watchers are actively betting on at least one, if not more, rounds of interest rate increases over the next few weeks. This could effectively delay recovery in much battered sectors such as banking, realty and automobiles.

However, there are still a few slivers of hope for optimists. A good monsoon (current indications are, it will be) can not only peg up agricultural output and help GDP growth, it can effectively quell inflation in food and edible oils, a key villain in the recent price episode.

The market is also evenly divided on whether the recent commodity spiral is a “bubble” or a “structural” change. Stock market investors should probably pray for it to be the former.

A correction in commodity and thus crude oil prices would be just what India Inc needs to make its escape from the vicious cycle of high inflation and higher interest rates.

For investors looking for cues to stock market direction, how the scenario on crude oil and the commodity pack plays out now holds the key to every other question.

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