Govt Mulling Emergency Measures to Shore Up Forex Reserves: What It Means for Stocks 

Mumbai, May 12: The government is considering emergency measures such as restrictions on non-essential imports such as gold and consumer electronics as well as fuel price hike to bolster foreign-exchange reserves and provide relief to the economy from Iran war repercussions.

Top officials from the Prime Minister’s Office (PMO) and the Finance Ministry discussed various steps with the Reserve Bank of India that can be taken to arrest the damage caused by increasing oil prices, the report by Bloomberg said. The report quoted people familiar with the matter as saying that one of the options being considered is raising fuel prices.

What the emergency steps mean for sectors involved

Gold Import Ban

Restrictions on gold imports will directly impact jewellery retailers and gold finance companies. Titan Company, Kalyan Jewellers, Senco Gold are some stocks that we think are most vulnerable to negative demand destruction due to constrained gold supply resulting in higher domestic gold prices and lower discretionary spends on jewellery. Gold NBFCs like Muthoot Finance and Manappuram Finance too would be impacted if gold prices become volatile and there is uncertainty over collateral values.

Restrictions on Consumer Electronics

Restrictions on imports of consumer electronics would impact retailers as well as companies that assemble consumer electronics that have high import dependence for components. Margins of companies in the consumer durables space could come under pressure.

Fuel Price Increase

Increase in fuel prices would be the first since the Iran war broke-out and could result in strong positive reaction from oil marketing companies (OMCs). The HPCL, BPCL and IOC have been losing money on every litre of fuel they sell due to government-controlled price caps. Any rise in prices will result in significant improvement in marketing margins of these companies.

Summary

• Jewellers (Titan, Kalyan, Senco): Bearish -constrained gold supply hits demand
• Gold Finance Companies (Muthoot, Manappuram): Bearish -collateral uncertainty, growth concerns
• Consumer electronics retailers: Bearish — impact of import restrictions
• Oil marketing companies (BPCL, HPCL, IOC): Bullish -fuel price hike raises margins
• Rupee: Slightly bullish – lower import bill reduces pressure on currency
• RBI intervention: Lower – reduces forex outflows

No final decision has been made yet, the people familiar with the matter told Bloomberg, and the Finance Ministry and RBI declined to comment.

PM Modi Asks Citizens To Adopt Energy-Saving Measures in Hyderabad

In another related news, Prime Minister Narendra Modi on Sunday called on Indians to

adopt a series of energy-saving measures. The most immediate consequence of the West Asia conflict for Indian households is the surge in crude oil prices. While the government has so far held back from passing higher petrol and diesel costs on to consumers, commercial LPG cylinder prices have been raised on two separate occasions over the past two months.

“It is time for us to use petrol, diesel and gas with great care,” Modi said on Sunday at a project inauguration in Hyderabad, Telangana. “We must make efforts to use only as much as is needed to save foreign currency and reduce the adverse effects of the war,” he added.

Modi put forward seven key appeals:

• Work from home wherever the option exists
• Refrain from purchasing gold for the next one year
• Cut petrol and diesel use by switching to the metro or public transport
• Scale back consumption of cooking oil
• Avoid travelling abroad for one year
• Reduce reliance on chemical fertilisers and shift toward natural farming
• Buy fewer imported goods and embrace Swadeshi