Jayanta Mallick

AS was expected, the fresh investments figures by FIIs were down on each day last week and the benchmark indices did not make much headway. Though the overseas funds flow ended the week in the positive territory, the bullish undertone was clearly amiss.

As the global crude oil price continued to rule strong, the market sentiment remained damp for the local players too. The domestic mutual funds indulged in moderate buying.

The stock-specific activity in the mid- and small-cap counters, however, continued with gusto on positive new flows.

This week global oil price movement and the Government's stand on upward revision of retail petroleum product prices as also indications on subsidies would determine investments and sentiment on the stock market. The mid- and -mall cap stocks, however, may buy some time to dance.

The international crude price outlook does not appear good for the week as Ecuadorian political crisis caused suspension of its oil exports. Friday's fresh crude price upsurge was also fuelled by an unexpected event like a Jordanian rocket narrowly missing a US warship. According to oil analysts, small event like this in the backdrop of tight supply situation is not allowing the prices to cool down.

For India, continuation of crude price above $60 a barrel is bad and may undermine the economy seriously. Though the overseas funds continued to pump in money to India, they are keenly weighing the unfolding negatives on the economy and corporate earnings in the coming quarters.

The Government may take a soft call on the retail petroleum prices by raising them within a band of Rs 1.50 to Rs 2.50 a litre in the next couple of weeks and hope that global crude prices stabilise bellow $60 level in September. This may not push inflation up by more than 2.5-3 percentage points from the current low level. This soft measure will also bring down losses to oil marketers to an extent. But it will raise concerns over attaining 7 per cent GDP growth this fiscal.

According to indications, the IMF study paper World Economic Outlook, due to be published in mid-September, is likely to suggest record high oil prices as the biggest threat to global growth. A study preview further suggests lack of adequate oil refining capacity is likely to affect supply. IMF appears to be revising the average oil price upwards from $46.5 to $51 a barrel for the current year and pegging the average for 2006 at $53 a barrel. The IMF may, however, stick to its spring forecast of global growth for 2005 at 4.3 per cent.

Will India, one of the biggest growth drivers for the world, deliver when crude continues to kiss the peak? This is the key issue that is up in the overseas fund mangers' mind who are glued to India. Clarity will not emerge overnight. As of now, India has not entered the risk zone for the foreign investors. They would like to go slow for the time being and may even stop the fresh flow.

A correction of 700 to 800 points on the BSE Sensex may not be unearthly in this liquidity-driven market in the intervening period between now and September.

Come September, they may decide to play the appropriate tune.

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