Lower Commodities, Policy Reforms to Boost Stocks, Motilal Says

Manish Sonthalia, who manages $300 million in equities at Motilal Oswal Asset Management Co. in Mumbai, comments on the impact of a fuel-price increase on India’s stocks. He spoke today in a phone interview.

The S&P CNX Nifty Index on the National Stock Exchange climbed 1 percent to 5,527.65, at 10:27 a.m. local time. Policy makers allowed state-run refiners on June 24 to increase diesel costs by 3 rupees (7 cents) a liter, kerosene by 2 rupees a liter and cooking gas by 50 rupees per 14.2-kilogram bottle.

On the fuel-price increase:

“The government has set the ball rolling with the fuel- price hike. It is the first bold economic reform taking place. The government is now in a sweet spot to fully decontrol diesel prices. Oil marketing companies will not incur any losses if Brent crude comes to $90 per barrel. Lower commodity prices are the biggest positive. The market will gradually build in the two positives in stock prices. The fuel-price hike will raise inflation but it will be more than offset by declining global commodity prices.”

On further reforms:

“If the government follows up on reforms by introducing legislation on foreign direct investment in retail and insurance and the Lokpal Bill in the monsoon session of the Parliament, stocks will rally. We expect the oil and gas space to see more reforms in the coming days.

Sector recommendations:

‘‘We are bullish on pharmaceutical and infrastructure stocks. Infrastructure stocks have declined to ridiculous levels. Expected government reforms on coal availability, cement pricing and real-estate regulations will provide a boost to infrastructure stocks. We are also finding pockets of value in banking and real-estate stocks. Banking stocks may recover as we expect the interest-rate cycle to peak soon.

On the outlook for stocks:

‘‘Once the Greece crisis is over, we expect incremental buying to come back in stocks, which will take the Nifty to 5,700 levels. Barring euro-zone worries, all negatives are discounted for in the price. Stocks today are driven by short- covering and there is no major buying. The indices are being single-handedly pulled up by Oil and Natural Gas Corp.’’

To contact the reporters on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net;

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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