A hike in the prices of the petroleum products such as petrol, diesel and Liquefied Petroleum Gas (LPG) is inevitable as the value of Indian National Rupee keeps skidding downwards against the US Dollar. On 23rd May 2012, the Rupee hit an all time low of Rs. 56 per dollar. In order to take a decision on the price of fuel, the Empowered Group of Ministers (EGoM) will convene soon. The oil companies are demanding a hike of at least Rs. 4 on every litre of the fuel. However, the central government may settle for a much lesser amount.
On 22nd May 2012, S. Jaipal Reddy, Petroleum Minister, stated that there is an urgent need of hiking the price of petroleum products, but he refused to divulge to say when this price hike will come into effect. While on his way to Ashgabat to sign agreement for the Turkmenistan-Afghanistan-Pakistan-India pipeline, Reddy said, “It (price increase) is very essential but (before hiking rates) we have to talk to political parties.” He further added, "If rupee depreciates by one against the US dollar, our oil companies lose Rs. 8,000 crore (annually)."
Oil companies that are owned by the government have lost a total of Rs. 4,860 crores from petrol sales in the FY ending on 31st March 2012. The firms are accumulating losses at the rate of Rs. 6.28 on every litre of the fuel being sold at present.
All these speculations regarding the possible fuel hike by the government have taken their toll on India's auto index, as it declined by 1.1 per cent. This recent development further clouded the automotive sector which is already uncertain about the future sales volumes and is combating increase in cost of raw material due to the free fall of the Indian rupee.
According to a trade analyst, "Auto shares are falling on back of a likely increase in fuel price following the sharp depreciation in rupee, muted volume growth guided by the industry for FY13 and little respite from raw material cost due to currency volatility." As per traders, if the cost of subsidies slashes due to the price hike, it will reduce concerns of the investors regarding the finances of the government.
The shares of two wheeler giant Bajaj Auto went down by 1.6 per cent, whereas Maruti Suzuki witnessed a decline of 1.8 per cent. Domestic automotive major Tata Motors fell 1.6 per cent on the index as well. At the closing time of market on 22nd May 2012, the auto sub-index skidded down by 12.5 percent this month against the fall of 7.4 per cent in the 50-share NSE index.
