05 February,2011 07:11 AM IST | | Bobby Anthony
Inflation bears down Sensex, paring 441 points in a single day. Combined with this,u00a0 international crude oil prices will have a cascading multiplier effect on food inflation
Foreign Institutional Investors (FIIs) went bearish and brought the BSE Sensex down to 18008.15 points down by 441.16 points as if to prove Prime Minister (PM) Manmohan Singh right. The PM, said yesterday, "Inflation was beginning to pose a serious threat to India's high growth plans."
Inflation has unleashed the bears and the immediate situation looks grim with international crude oil prices expected to have a cascading multiplier effect on food inflation, which has already touched 17.05 per cent.
"Ammonium nitrate fertilizer is derived from petroleum or natural gas. If international crude oil prices rise, the price of nitrogenous fertilizer will also see a spike.
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This will have a direct bearing on agricultural production. Again, petroleum products are used to transport food and even cook it. Even plastic, which is a raw material for several industries, is made from petroleum. If crude oil prices go up further, then the impact will be huge.
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It will immediately impact the foreign exchange market, because it will increase India's oil import bill. Most of the oil procured by India is imported.
RBI too will be forced to take tough decisions on interest rates and this will affect banking as well. It is apparent that just about every sector will be affected and the stock market is reflecting that sentiment," an analyst said.
"Rising crude oil prices have added to the poor sentiment in the markets. There is no fresh money coming in and investors prefer to stay on the sidelines on inflation worries," said MiD DAY columnist and founder director of investment advisory firm Kejriwal Research & Investment Services Pvt Ltd.
Will there be panic selling by small investors?u00a0"By Tuesday, the market will rebound, but it will not be sustainable. Small investors can opt simply, to stay put and refrain from short-selling because the coming week's market is expected to be extremely volatile.
Expert investors, will of course play the futures and options markets. But ordinary investors should simply
stay put," Kejriwal recommended.
He also indicated that since RIL has not been performing well for almost two and a half years, the market might evolve a new leader.
"I know I am making a loaded statement about RIL. But the fact of the matter is that it has not been performing for the past two years. In such circumstances, the market may look for a new leader, or the market will evolve a new leader.
"Also, by now it is quite apparent even to novices that realty players DB Realty and Unitech, whose names keep cropping up in the 2G scam, will continue to bleed are beyond rescue.
"However, if the government agrees to a joint parliament committee probe and also arrests Kalmadi as well as Radia, it will be positive for the market.
Already, trial balloons are being floated about on what terms the government must allow money stashed away abroad to be brought into the country. If such money comes in, that too will be good for the market," Kejriwal observed.
