Analysis: The Setting Suns Among The Rising Stars

The Setting Suns amidst the Rising Stars

Vriddhi Research
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After a very difficult 2013, Indian Markets emerged as a rising star among all the global indices except for China in the Year 2014. The major cues that lead to this bull-run were emergence of BJP as a single largest party under the leadership of Mr. Narendra Modi, the improving inflation data and the sharp decline in crude oil prices. On the global front, the end of QE by US FED signaled that the world’s largest economy is on its path to full recovery and fuelled the markets. The optimism shown by the FII’s towards the newly formed government at the centre was also a major reason for domestic investors to ride the bull. The FII inflow in
However, the decrease in the prices does not help the domestic oil exploration companies as it leads to decrease in their revenues. Therefore the revenue of the upstream oil companies in India started reducing in a major way. Stock Prices of Companies like Cairn India, ONGC(only upstream operations) and Aban Offshore were affected in November and December. Saudi Arabia has to reduce its rate of exploration if the crude oil prices are to increase. The demand by the US and China which are the two largest importers also won’t see a major boost in 2015 owing to replacement by shale gas and slowdown in economy respectively.

Therefore, it is unlikely this sector will recover in the short run as the crude oil prices are expected to consolidate at $70 levels. Hence, domestic companies like Cairn India will find it very difficult to increase their revenues in the short run as they have to price based on global prices. The graph below indicates the fall in Cairn India share price as crude oil prices have plummeted in last few months.

Here is the graph showing the performance of Cairn India stock in the last 6 months. As the crude oil prices started falling, the stock price also fell
The decreasing global sugar prices because of global supply surplus, has put a lot of pressure on the sugar mills in India. The high price which sugar mills have to pay to sugarcane producers has also been an issue of debate as this reduces the margins for sugar mills. The Government has set the price at Rs.280/kg to be paid by sugar mills to sugarcane producers/farmers. Therefore the breakeven price for the sugar mills comes around Rs. 320/kg which is very high as the domestic sugar price is less than this owing to global prices. As a result, sugar mills have to sell sugar at a price lower than their cost of