Markets to sail in rough waters if oil skyrockets to $150 a barrel

The stock markets may witness a sharp fall if the prices of crude oil touch the psychological mark of $150 a barrel on the New York Mercantile Exchange (Nymex). Crude hit a life-time high of $147.9 a barrel on Friday. The prices have jumped by more than $10 a barrel since July 9."Panic selling is likely this week. But the Sensex has a strong support at 12,300, which it may fall to in the worst case scenario," said Deven Choksey, managing director, K R Choksey Shares and Securities, handling an equity portfolio of over $550 million.

Crude rose to records last week on growing tensions between Israel and Iran and supply disruptions from Brazil to Nigeria. ran has threatened to cut oil shipments through the Strait of Hormuz - through which 40 per cent of the world's oil passes - if it is attacked by Isreal over its suspected nuclear weapons program. Meanwhile, a Brazilian oil workers union is planning a five-day strike.

Oil also rose due to the weakening dollar, which bolstered the appeal of commodities as a hedge against the US currency's drop. The dollar declined to an all-time low against the euro on concerns that US government may be forced to take over mortgage lenders Fannie Mae and Freddie Mac.

The dollar fell 0.9 per cent to $1.59 a euro in New York. It touched $1.59, the weakest since April 23. Quarterly earnings from the US-based JP Morgan, Merrill Lynch, Citi Group and Thornburg Mortgage are likely to influence the American markets.

The benchmark Dow Jones closed at 11,100 points on Friday, down by 128.48 points or 1.14 per cent, after falling below the 11,000 mark in intraday trades for the first time in two years.

Choksey, however, expects a broad-based rally in the next quarter. "There are strong indications that crude was at its peak in this quarter and may fall below $135 in the coming weeks," he said. The markets could take support at 12,800-13,000 points next week if crude oil goes higher.

The Sensex ended at 13,496 on Friday, up only 0.12 per cent from the previous week. The broader Nifty closed the week at 4,049 points. Meanwhile, the earnings season has begun, with the bellwether IT company, Infosys Technologies announcing its results on Friday. The stock was down by 7 per cent to Rs 1,676 a share on Friday.

Satish Ramanathan, head of equity at Sundaram BNP Paribas Mutual Fund, said, "Markets may appear cheap at these levels. But if corporate earnings see a fall due to rising interest rates and commodity prices, the stock price correction may not look that adequate."

The top corporate houses that would announce their first quarter results for FY'2008-09 include Tata Consultancy Services, HDFC, Satyam, Wipro, IDFC and Axis Bank.

The markets did not react to the earnings guidance provided by Infosys Technologies. Data from the Securities and Exchange Board of India (Sebi) indicates that foreign institutional investors sold stocks worth Rs 1,358 crore last week.

The Business standard dt. 14 7 2008