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Oil bubble, aviation trouble & more... - Views on News from Equitymaster
 
 
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  • Jun 4, 2008

    Oil bubble, aviation trouble & more...

    High food prices bad news for world's poor...
    The world is moving towards a long period of rising food prices, if one were to go by a report released by the United Nations (UN) and the Organisation for Economic Cooperation and Development (OECD). The report states that while food prices should ease from their recent record peaks, they are expected to average well above the mean of the past decade over the next 10 years. This should ring alarm bells for policymakers, especially those in developing countries who are net importers of food. The UN-OECD reasons that drought in some of the world's main grain-producing regions (like Australia, which is one of the largest exporter of wheat), changing diets, urbanisation, economic growth and expanding populations are likely to be the factors that will keep food prices higher in the coming ten years.

  • Growing worries of rising food prices

    In the meanwhile, the UN seems to be on the side of developing countries when it comes to the food crisis. Some of its officials have indicated that resolving the global food crisis could cost as much as US$ 30 bn a year, and wealthier nations are doing little to help developing nations face the problem.

    The UN has, in fact, sharply criticised the developed world for cutting spending on agriculture programs for the world's poor and ignoring the loss of rain forests while spending billions on carbon markets, subsidies for their own farmers and biofuel production. Food versus fuel? Aha! The argument continues!

    ...and high oil bad for the entire world
    ...so says George Soros, one of the world's most successful hedge fund manager, thereby painting a grim picture of the oil economics. As quoted on Bloomberg, Soros has said, "Oil bubble is working with fundamentals in the market that may lead to a recession in the world's largest economy. The rise in oil prices aggravates the prospects for a recession.'' However, suggesting that the current oil prices have a strong foundation in reality, he has indicated that a crash in the oil market is not really about to happen. Bad news for consumers in countries like India and China, which have not really seen any slowdown in fuel demand despite fears of rising prices.

  • Crude trouble for carmakers

    In India for instance, the government (through the oil marketing companies) has taken most of the hit of rising crude prices. We do not believe this to be sustainable. Who'll take care of the inflation, which remains understated, and the fiscal deficit, which remains insulated from rising subsidy bill?

    Airline companies would vouch for that!
    Perhaps the first and most brutal impact of rising oil prices is being felt by the global airline industry, which has seen almost a couple of dozen players shutting shop (due to their inability to maintain profitability) globally over the past few weeks. While Indian airline companies have managed to survive till now, they are seeing their profits shrink.

    In order to counter the issue and take some pressure away, some of the players like Jet Airways have raised their fuel surcharge for the third time in as many months. As reported on Bloomberg, Jet Airways and its low-cost venture JetLite (erstwhile Air Sahara) will charge an additional Rs 300 rupees on flights of up to 750 kilometers and Rs 550 rupees beyond that. The report further states that Jet's closest competitor, Kingfisher Airlines and its affiliate Deccan Aviation will raise the surcharge by a similar margin.

    As an instance, taxes and surcharges (fuel levy, passenger service fee, congestion charge - you name it and they have it!) will now account for as much as 85% of a ticket for a budget airline between Mumbai and New Delhi. This could very well impact the passenger growth needed to support seven new airline companies that have taken wings over the past four years. And if you are a frequent flier, get ready for some rough weather ahead. Suddenly, your 'free' in-flight meal has gotten all the more expensive!

    Indian mobile jamboree goes on unabated
    The country has recorded an addition of 8.2 m new mobile users in the month of April 2008, thereby maintaining the momentum in the world's fastest-growing mobile services market. At the end of this month, India had nearly 270 m wireless users (combined for GSM and CDMA technologies), which is a growth of 57% YoY. The monthly addition, while remaining stupendous, came in lower than the 10.2 m new subscribers added during the previous month (March 2008). Also, while the party continues in the mobile space, the declining trend in the fixed line subscriber base continues with the same falling by 200,000 during April to touch 39.2 m subscribers.

  • Opportunities in the Indian telecom sector

     

     

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