fuel price hike Part 2

once again the government has increased the prices of fuel-- decontrolled the petroleum prices last week on friday.

So what does it mean for us?

Clearly this will have far reaching impact on our economy. Here are some points.

1. Increased inflation by at least 1% in the coming few weeks. We are already at the threshold of 10% with no sight of it coming down! No salary increases in the IT sector basically making lives even more miserable
2. The RBI will have an even more bigger problem. The growth of the world is still very shaky- with inflation skyrocketing in India- will the RBI bring in some monetary measures ( increase the rates etc?). It looks very likely that it will happen soon. The RBI is primarily focussed on inflation and not growth.

There are however going to be some good things that will come out of it also..

1. The fiscal deficit of the government will come down because there is a direct reduction in the subsidies by the government quite significantly and hence the government maybe able to use those resources for improving infrastructure.

2. The Increase in prices will force us to become more conservative in our spending on petrol products and hence become more focussed on cleaner fuel and better productivity-- Use the metros more etc etc. We as a people are very good in saving and this will bring out the best in us. ( read my previous post on saving petrol)

So how will this impact some of the companies that are out there.

1. Companies which are oil marketing and oil manufacturing companies- ioc,hpcl will all zoom

2. Autos will face reduction in their sales- tata motors , m&M

3. consumption companies will also reduce

4. With RBI action being highly possible , banks face increased rates and hence will also have tapering off on their growth

So relook at your portfolios and relook at your upcoming expenses... I hope these days of high inflation dont continue-- all my planning has been done at 6% and its been two yrs where its been much more than that.

Hoping for the best.

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