ONGC FPO which was scheduled to open on Tuesday the 20th of September 2011 has been postponed. Various reasons including the sudden decision to raise petrol prices with immediate effect by a steep Rs 3.14 per litre and no increase on diesel prices is also mentioned as one of the reasons for the postponement.

Irrespective of what may be the actual reason, one will never come to know the same. However one thing is sure trading on Friday the 16th of September is likely to be a Black Friday. Some of the reasons for this are as follows: –

  • The hike in petrol prices will lead to higher inflation, prompting RBI to raise interest rates once again in their meeting of 16th September
  • Petrol price hike without any diesel hike shows the reluctance of the government in tackling the subsidy issue and the political fallout from the same.
  • The postponement of the ONGC issue even temporarily indicates the fragile and nervous state of the market. If a company like ONGC is unable to raise 2.4billion dollars from the market because of market conditions it certainly sends wrong signals to investors globally about the India story and Indian Stock markets.
  • The ONGC issue appears to have been postponed by 15-30 days. One is not sure whether this postponement or delay will cause any significant positive impact to valuations or not. The bigger concern is that if crude prices rise or the rupee depreciates further ONGC would be a loser because the under-recoveries would increase.

One needs to remember that advance tax numbers which have reported today do not show any significant improvement of any kind over the previous year. This certainly shows that the growth or performance in Q2 would continue to be impacted and this could be negative for corporate India. What then could impact our markets positively; particularly ONGC is a mystery to me.

In the immediate term the discount between ONGC spot price and the futures price which is trading at aa discount of Rs 7 would reduce with the issue being postponed atleast for the time being time. The current discount should come down significantly and may reduce to less than Rs 2.

Let’s hope the markets do not get impacted severely in tomorrow’s trading.

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