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Crude oil reaching the level of $70 per barrel will challenge the Indian government’s conviction for reforms, Ambit Capital’s Chief Executive Officer Saurabh Mukherjea told Bloomberg Quint. In particular, it will raise one question whether the government still wants deregulated oil going forward, he said.

The government deregulated petrol prices in 2010 and diesel prices in 2014 to align these closer to that of international crude prices. At the same time in 2014, the price of crude oil tumbled close to $50 per barrel from near $100 a barrel. India being a crude importing country benefited from the fall in crude prices.
Some economists, such as Sajjid Chinoy of JPMorgan, argue that the crude oil slump was one of the primary reasons that took India’s GDP growth to 8 percent over that stretch of time. However, it is now 2017 and benchmark WTI crude is making a dash towards $60. This could have an adverse effect on India’s already slowing economy and a fairly overstretched market, said Mukherjea. If oil prices continue to rise close to $70 per barrel, the government may have to consider subsidising fuel once more, he said.

On India’s Record Stock Market Rally

Mukherjea said that the quality of money coming into the market was less than ideal, especially on the qualified institutional placement front. While the government’s Rs 2.11 lakh crore push in the form of public sector bank recapitalisation has improved the earnings and growth outlook for next year, the markets still seem overstretched, he said.
“Barring a miraculous pick up in earnings next year, you’ve got an overstretched market.” 
Saurabh Mukherjea, Chief Executive Officer, Ambit Capital
On Monetary Policy
Mukherjea said that the “conservative investor should take this as broadly the bottom of the rate cycle” as commodity prices and fiscal spending could go up, pushing inflation close to 5 percent. “I think the odds are going towards rate hikes rather than rate cuts over 2018.”

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