The EGOM (empowered group of ministers) today increased the prices of diesel by Rs 3 per liter, while the prices of LPG cylinder are increased by Rs 50 per cylinder. Also the rates of kerosene are increased by Rs 2 per liter.
The rise in the prices of the petroleum products only suggests an increase in the inflation levels in the coming months. The inflation level of 9% reported for the month of May is now likely to cross 9.5% thus challenging the economic growth. This in our view is likely to have an adverse impact on the overall performance of corporate India as well.
A rising inflation level also signals that apart from the muted performance of the corporates, this would also impact the common man in a big way. The prices of essential commodities is likely to rise accordingly thus leaving a low disposable income in the hands of the common man. Based on the above we feel the Indian stock markets will continue to remain under pressure and the over hang of high inflation levels could continue to over weigh the sentiments of the investors. Having said this we might see a temporary upside in the markets, primarily due to the positive global cues i.e. the positive development on the Greek debt crisis. This may continue for some time in the near future and investors may use this as an opportunity to exit and then re-enter at around 16000-16500 levels on the sensex in the next few months.
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