Global markets reel under unrest in Arab world, North Africa; oil prices at 28-month peak

Soaring oil prices could deal a major blow to India which is dependent of imports. The unrest in West Asia and North Africa would also impact domestic companies that have operations in the region, or have sizeable orders from these countries

The ongoing political unrest in several parts of the Arab world and some North African countries is rocking global markets. The turmoil in West Asia has had a strong impact on commodities, particularly oil, the price of which has shot up to a 28-month high of more than $92 a barrel on supply concerns. Gold is at a seven-week high and gold futures have surpassed the $1,400 level.

Wall Street's key volatility measure spiked on Tuesday, as investors worried about the deteriorating situation in Libya. The CBOE volatility index (VIX) rose 27.8% to 20.99 in late afternoon trading. The index is up more than 31% in five days and is now at its highest level since late November.

However, according to analysts, the fear level is still below 30-the benchmark of investor worries. Year-to-date the index is up only about 18%. Wall Street saw a sharp sell-off on Tuesday with the Dow losing 174 points, its worst day since August.

Analysts feel that there could be further oil price volatility, perhaps even a minor oil shock. Oil, which is trading at a level not seen since October 2008, may remain elevated, as companies in Libya have shut at least 100,000 barrels per day (bpd) of production. Libya is a member of the OPEC and Africa's fourth largest oil producer after Nigeria, Algeria and Angola, with a production capacity of 1.8 million bpd and estimated reserves of 42 billion barrels.

Religare Capital Markets Ltd said in a research note that its Middle East and North Africa (MENA) strategist, Emad Mostaque, believes the unrest is unlikely to spread and disrupt oil supplies, but that the geopolitical risk premium will remain for some time to come. Ultimately, the turmoil will accelerate economic liberalisation and infrastructure spending throughout the region which should be a positive driver for more sustainable growth, rising employment and income levels, the brokerage said.

However, for India, which relies mostly on imports, this could be a major blow. Petrol prices have been hiked several times since June, although diesel has been left untouched so far. This will also affect some Indian companies which have operations in the Middle East and Africa.

"Most severely affected could be Punj Lloyd whose 33% of more than Rs256 billion order book comes from Libya. The order execution was already moving slowly and these incidences are likely to stall it further," GEPL Capital said in a flash note.

Other companies, which have operations in the Middle East and that may be affected are Voltas, IVRCL Infrastructures & Projects, Everest Kanto Cylinder, Bharat Heavy Electricals (BHEL) and Larsen & Toubro (L&T). Voltas has sizeable operations in Egypt and Libya. IVRCL, Everest Kanto, BHEL and L&T have orders from the Middle East, but these orders are not significant compared to the entire order book of the companies, the brokerage said.

Punj Lloyd shares fell 5.3% to Rs63.90 on the Bombay Stock Exchange (BSE) while the benchmark Sensex closed 117 points down (0.64%) at 18,178.3 points. Similarly, Voltas fell 3.5% to Rs163.80, while Everest Kanto declined 1.7% to Rs73.40, BHEL lost 1.4% to Rs1,046.70 and IVRCL was down 1.2% to Rs69.90. L&T declined 0.4% to Rs1,602.30.

With risk appetite slipping, investors across the globe are not really attempting to take any chances. The flight to safety may be the order of the day, but the worsening political unrest in West Asia and North Africa will keep investors nervous for some time longer.


SEBI to appoint Super-D platform vendor by June

The market regulator plans to set up the platform for filing of information reports in XBRL (Extensible Business Reporting Language) by listed entities, registered intermediaries and other entities

Mumbai: Capital market regulator Securities and Exchange Board of India (SEBI) is likely to appoint a vendor for the implementation of its comprehensive reporting, filing and dissemination system, Super-D by June this year, reports PTI quoting a senior official.

"We have already received Expressions of Interest from a host of bidders. Now we are preparing Request for Proposals to be issued to the shortlisted bidders for the implementation of SEBI Unified Platform for Electronic Reporting-Dissemination (SUPER-D)," a senior SEBI official told PTI on condition of anonymity.

SEBI received a good response to the global bids, which it invited last year, the official said, adding, "In all likelihood, we will select the bidder by June."

The regulator plans to set up the platform for filing of information reports in XBRL (Extensible Business Reporting Language) by listed entities, registered intermediaries and other entities, not limited to regulatory filing requirements in terms of the listing agreement and various SEBI regulations/guidelines.

Currently, there are 4,996 listed companies, 20 stock exchanges, 1,730 registered foreign institutional investors, besides several thousands of intermediaries.


Oil ministry wants duty cut on crude oil and petroleum products

The Indian basket of crude on Tuesday touched $105.05 per barrel, necessitating a hike in fuel prices. The three OMCs are currently losing Rs430 crore per day and at current rates are projected to end the fiscal with Rs76,559 crore revenue loss

New Delhi: As crude oil prices climbed to a two-and-half year high of $108 per barrel, the petroleum ministry is pinning hopes on customs and excise duty cut in the Union budget to avoid hiking petrol and diesel prices, reports PTI.

"The spurt in international oil prices following crisis in Libya has meant that the difference between domestic retail selling price and the imported cost widens. This situation is not sustainable," an oil ministry official said.

The Indian basket of crude yesterday touched $105.05 per barrel, necessitating a hike in fuel prices.

"With Parliament in session, I don't see it will be possible to even raise price of petrol, which had been freed from government control in June last year," the official said.

"Also, there are concerns of the inflationary impact of the hike in prices particularly of diesel on food prices", the official said.

Petrol, whose prices were last raised by Rs2.50 a litre in January, is being sold at a discount of Rs2.50-Rs2.75 a litre to its imported cost.

On diesel, state-owned Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation lose Rs10.74 a litre. Besides, they lose Rs21.60 per litre on kerosene and Rs356.07 per 14.2-kg domestic LPG cylinder.

The three oil marketing companies (OMCs) are currently losing Rs430 crore per day and at current rates are projected to end the fiscal with Rs76,559 crore revenue loss.

"If prices cannot be raised, the next best option to limit the impact of rising international oil prices is to reduce duties," the official said.

The ministry is hoping finance minister Pranab Mukherjee in his budget for 2010-11, to be presented on Monday, will abolish customs duty on crude oil and cut excise on petrol and diesel to avoid a further increase in retail prices.

It wants customs or import duty on crude oil to be reduced to zero from 5% at present. Also it wants the customs duty on diesel slashed to 2.5% from 7.5% at present, along with a reduction in the specific excise duty imposed on the most-consumed fuel in the country.

"Eliminating customs duty on crude and correspondingly bringing down duty on finished products would reduce the under-recoveries (revenue loss on selling fuel below cost) that are compensated by the government," he said.

"Instead of collecting customs duty on crude and later refunding the same as under-recovery compensation, the government may eliminate the duty on crude as was done earlier," he said.

The average price of crude oil during 2008-09 was around $82 per barrel, when the duty on crude oil was reduced to zero. The average price of crude oil during 2010-11 has already crossed $82 per barrel and may increase further.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)