1:30PM New York, 10:00PM Mumbai – A debate in ruling governing coalition on how to pass fuel price increase to consumers left market averages lower. May auto sales rose.

Political concerns dampen the markets

Growing political concerns weighed on the markets on Monday the late trading session, erasing early gains. Talks of a hike in fuel prices, widening trade deficit and slower manufacturing data sparked a sell-off in the evening trading.

The market was firm in the morning but sold off after reports that the Revolutionary Socialist Party, a member of the Left Front led by the Communist Party of India-Marxist was pulling out of the United Progressive Alliance-Left coordination committee.

Market Sentiment

In Mumbai trading, the 30-share BSE Sensex declined 2.2% or 352.39 to 16,063.18. On the NSE, the S&P CNX Nifty fell 2.7% or 130.5 to close at 4,739.60 levels.

Of the BSE traded shares, 600 shares declined, 2,066 shares fell and 50 shares remained unchanged.

Trading Statistics

Daily turnover on the BSE stood 4,779 core rupees and on the NSE it was recorded at 11,826 crore rupees.

Essar Oil was the most active stock with a turnover of 183.42 crore rupees on BSE followed by Reliance Capital, Reliance Industries, GSS America Infotech and Reliance Petroleum.

IFCI clocked the highest volume of 1.84 crore shares on the BSE followed by Ispat Industries, Spice Communications, Chambal Fertilizers and Reliance Natural Resources.

Fuel price hike inevitable - PM

With political parties including the Left opposing hike in fuel prices, Prime Minister Manmohan Singh on Monday warned that the government is not in a position to fully insulate the consumer from the impact of rising oil prices.

Despite the crude oil prices near record level and trading nearly 100% higher from a year ago and state-owned oil marketing firms suffering large trading losses, the government has not been able to pass on the burden due to lack of political consensus.

There are differences within the government in passing the hike in oil price to consumers. Finance ministry and few parties in the coalition are opposed to duty cuts sought by the petroleum ministry.

Petroleum and natural gas minister proposed an increase in petrol price of 10 rupees a litre, diesel price increase of 5 rupees per litre and for a cylinder of gas by 50 rupees.

But the Left parties are opposed to any fuel price increases passed on to the consumers however, the parties have not said that how they plan to pay for the rising government deficit from the oil imports.

April trade deficit soars

Exports from India soared 31.5% to $14.4 billion and imports in the month surged 36.6% to $24.3 billion. Rising crude oil prices continue to drive the oil import bill higher. India imported $8.02 billion, a rise of 46% from a year ago as crude oil prices surge nearly 70% in the period. Trade deficit in the month surged to a record high of $9.8 billion. Rupee against dollar has fallen 7.5% in the last three months helping the exports but rising crude oil prices have increased import bill and fueled inflation.

For the fiscal 2009 trade deficit is expected to rise to 9%.