Commodities to spur India’s rise

Falling prices of oil, gold and coal to result in ripple effect
Mumbai: India’s oil subsidy is expected to fall by 44 per cent year-on-year (yoy) in FY’15 to Rs8 lakh crore ($13bn ) the sharpest drop in any one year since FY’10 and by a further 42 per cent to Rs 6 lakh crore $(9.6bn) in FY’16 from falling global oil prices which is currently at a 17-month low. Decelerating global oil demand (IEA has downgraded demand estimates from 1.3mmbpd in January 2014 to 0.9mmbpd currently) strengthens the case for a sustainably lower oil price said Deutsche Bank in a report titled “The dial is turning from vicious to virtuous”.
It said additionally a decline in coal prices to 5 year low has further sweetened the investment thesis for India. “Declining oil, gold and coal prices should result in multi-layered benefits for the Indian economy, its external accounts, capital markets and savings profile,” the report said.
Among the other beneficiaries of the falling crude prices are the entry-level cars, PSU banks and oil marketing companies. Maruti (Alto/WagonR) will be the key beneficiary of a recovery in entry level cars as the buyers in this segment have been most impacted by high gasoline prices and elevated levels of inflation and interest rates over the past three years. Maruti has a 74 per cent share in this segment.
According to the report HPCL’s working capital debt will fall by $0.9bn and BPCL’s by $1.1bn on reduction in fuel subsidies. ONGC and OIL will gain from lower subsidy contribution as they fund about 40 per cent of the subsidies.
In the savings sphere a major shift is expected with households shifting from physical assets to equity, mutual funds and insurance products. Physical assets rose to over 68-69 per cent of households savings in FY12/13, the highest in four decades. “We believe that fading glitter of gold should trigger a much needed shift away from physical savings to financial savings through bank deposits, mutual funds, insurance,” the report said.
( Source : dc correspondent )
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