On July 31 Moody’s Investors Service lowered the issuer rating of Indian Oil Corp Ltd (IOC) from Baa3 to Baa2. This translates to a stable rating pronouncement for IOC.

This action on the part of the agency comes in response to a significant fall in IOC’s profit margin as a result of ongoing regulatory controls in India. This has meant that the company cannot freely pass on the spiraling cost of oil to consumers. The steepening price of oil, despite alleviating measures undertaken by the Indian authorities, has had a markedly deleterious impact on the profit lines of companies such as IOC.

Moreover, the future years are likely to witness a further deterioration of the company credit profile, not least due to its considerable capex plan in the medium term.

“The sharp increase in global crude prices is leading to mounting under-recoveries for IOC and is expected to substantially increase the company’s need for funding to meet both working capital and capital expenditure requirements,” according to Ivan Palacios, who is the Assistant Vice President and main analyst for Moody. “Declining profitability and increasing borrowings to accommodate the capex plan will lead to deterioration in credit metrics, which will no longer be consistent with the previous rating,” Palacios goes on to add.

Despite steps initiated by the Indian government to address the losses being suffered by refineries owned by the state- like: increasing the monitored domestic fuel rates, slashing import duties on crude oil and reducing excise duties levied on gasoline and diesel, the domestic prices of fuel remain unforgivably below that dictated by the market. Additionally, returns from oil bonds can only partially shore up depleting bottom lines. Moody’s takes care to mention, also, that IOC suffers from an excessive preponderance of short-term debt, which is bizarre for a company looking for investment, more so in the current scenario. Fortunately, this has been somewhat counterbalanced by loyalty of the country’s banking system towards IOC. Further, the Reserve Bank of India (RBI) has pitched in to bail out these types of companies by snapping up oil bonds through its open market operations.

The rating accorded to IOC by Moody’s takes into consideration its underlying rating (that is, BCA) and also the latter’s anticipation of timely governmental support that the oil company is likely to be extended in case of impending financial collapse. But, in the final analysis, it is the fall of IOC’s BCA to 11 (comparably similar a Ba1 for Moody’s) which has precipitated the company’s final credit rating to slide to Baa3. According to Moody’s, IOC is likely to continue to receive governmental support, although it considers the degree of default dependence between the government and IOC (one of the factors in Moody’s JDA Methodology) to be “High” instead of “Medium”. The downgrading of IOC highlights the effect of growing subsidization of oil on governmental fiscal deficit, as also the accentuated strategic, political and social status of IOC in the eyes of the government in a scenario of uncertain oil price.

Moody’s consideration of IOC as a stable investment destination is an affirmation that the rating is not likely to weaken further in the near future, but a revision of such a rating may only be forthcoming in response to a noticeable shift in the rating accorded to the oil company by the Indian government. Taking into account the prevailing atmosphere of uncertainty in India, and climbing prices of crude, there appears to be a very paltry likelihood of the rating going up. However, if sustained subsidization of oil continues resulting in reduced financial hardships for IOC, so that the Cash Flow/Debt ratio is more than 20%-25% and the EBIT/Interest ratio is above 4x-6x on a persistent basis, there can be expected to be some upward movement of the rating.

Opposed to this, if RSF/Debt sinks below 5% and EBIT/Interest slides below 1.5x consistently, there could be a dip in the rating. Furthermore, if IOC’s cash position deteriorates as in case of hardships in getting buyers for its oil bonds, which could be a direct consequence of the RBI discontinuing its mopping up operations and with no alternative governmental action in sight, IOC’s rating could take a hit. Baa3 for IOC is, incidentally, at the same level as the currency bond rating of Indian government. If the latter rating starts going southward, so will be IOC’s rating.

All in all, IOC, which is owned 80.36% by the Indian government, doesn’t paint an all-too-pretty picture for the wary investor. How much investment it’s able to attract will be a matter of the future and its ability to present itself as a viable and profit-making concern that is not dependent on its existence by clinging to the apron strings of an indulgent government.

Enough is enough! The million-dollar question now is how far the increasing oil prices will take us down! The world economy, especially for the underdeveloped and developing countries, has already seen the heat of the rising fuel prices. Though, no immediate relief can be guaranteed in this regard, going by the market developments and experts’ opinions, it would seem that the time has come for the rising oil prices to give a break to its ever-expanding life expectancy.

Contrary to popular belief, it is now being accepted by the world leaders that financial hearsay was not mainly responsible for the recent unabated increase in oil prices; though, the main cause of the surge is yet to be discovered, analysts say.

A recent analysis has shown that demand for oil has really not increased in recent times to become a cause for the exponential growth of oil prices. So, what caused the oil and food prices to soar? It is the expectancy, they say, towards higher consumption of oil by the developing countries in the near future that caused the artificial shortage of fuel in the world market leading to steep increase in oil prices. If such a theory is to be believed, the sheer rising of oil prices is likely to slow down soon. Seeing the strong pursuing economy of the developing countries, people have become afraid about future oil demands and became suspicious about the future oil prices amidst such high oil demand.

Another possible reason that has caused oil prices to rise is the speculation about Russia and Mexico’s hidden intentions of lowering oil production in the near future that might affect adversely the oil supply chain. The report is yet to be investigated, but the notion has significantly contributed towards increasing the oil prices. Such speculation cannot last long and people’s fear about the same will soon vanish giving high relief to the soaring oil prices. Though, the decreasing of oil prices, in all probability, is unlikely, the ongoing steep rise of oil prices should come to a halt very soon.

The Market economy is complicated and difficult to negotiate. Even human behaviors affect it greatly. After giving rise to the debate of the food crisis world wide, human behaviors and their perception had changed that ultimately gave way to the speculations of future insecurity, which led oil owners to increase the oil prices.

The debate on food scarcity had given birth to a new risk of higher consumption of oil which set alarm bells ringing in the oil fields causing immediate increase in oil prices. Now, the dust of speculation seems to have settled and thereby it would seem that oil prices should drop or stabilize.

Members of the Organization of Petroleum Exporting Countries (OPEC) have a great role to play in reducing the steep rising of oil prices. The oil owners should maintain a balance between the oil demand and oil production. Business and operation of the OPEC is further a function of the interest rate, which also contribute largely in deciding oil prices.

If as believed a few mere speculations had actually caused the sudden increase in oil prices, a similar but reverse action may help oil prices to come down. Nobody knows for sure, but if America is able to draft a policy showing less consumption of oil in the near future, the increase of oil prices may stop. Also, to curb the price hike syndrome, the US may initiate such a step at any time now. Even otherwise, it is not possible that a commodity can sustain a continuous increase in its prices, which against the norms of market economy.

To cope with the consequences of steep rise of oil prices, different countries of the world have already started oil saving projects, thereby limiting their future oil requirement. If expectancy for future oil demand reduces drastically, the present trend of increasing oil prices should come to a halt.

The American dollar isn’t nearly as strong as it used to be, according to news that came about this week. Because the United States economy doesn’t look particularly promising at the moment, the dollar fell to a brand new low last week. This news, coupled with the fact that oil prices hit their highest points ever, leaves many economists in the United States with many new worries about the economy.

Among the problems with the US economy are the strangely low earnings from Bank of America, the continually slumping labor market, and the already slumping housing numbers. In addition to that, the Federal Reserve released a report on the economy that was anything but promising.
There has been a ton of pressure added to the credit market in recent weeks, as US banks might be looking at liquidation of their securities in the near future. This news also sparked the increased buying of US Treasury bills, which have long been a safe option for investors. This upswing shows that investors are concerned about the market’s direction and want to play it safe during this time.

Tom di Galoma, a chief executive with Jeffries & Co. had this to say in an interview with Yahoo News. “There are concerns about another rout in the credit market. Housing will be a drag on the economy for the next 12 to 18 months.”
There is also speculation among market veterans that another cut in the federal interest rate is coming either this month or the next. Most felt that the Fed would take action before December.

The government bond market also saw the yield on their three-month Treasury bill slip. The bill dropped 23bp to end up at 3.76%. This marked a three-week low. Other Treasury bonds also saw their stock drop in recent weeks, as the market has taken a hit.
The situation isn’t much better in Europe, where the ten year Bund fell by 4.32%. Over in Asia, the ten year Japanese government bond dropped a remarkable 1.64%, which is just one hundredth of a percentage point above the bond’s month low.
Over in the currency markets, the dollar has also seen a drop. It met a record low when compared to a number of different currencies in the last week. The Euro, on the other hand, made a record high number of $1.43 when compared to the dollar. Speculation has it that potential Fed interest rate cuts have played a role in effecting the situation.

Though there are certainly concerns over what to do about the dollar’s sinking value, all signs point to the federal government staying put at this point. All of the reasons for the dollar’s decline seem to be things that will sort themselves out if they are given the chance. Slumping housing numbers and low rate expectations are contributing factors that should eventually cool down as the value of the dollar increases.
As far as metals go, sterling saw a rise in its value this week. It hit a three-month high against the value of the dollar. This came as a result of above average retail sales data in the United Kingdom, where the economy seems to be heading in the opposite direction.
One of the primary concerns for the US economy comes as a result of the rising costs of US crude oil. With tensions in the Middle East continuing to grow, the price of a barrel of oil rose to nearly $90. This is an all-time high that doesn’t seem likely to come down anytime soon. Platinum and gold also look like they are headed into uncharted, record territory.

It can be quite discouraging for investors when debacles like auditing scandals or Enron bankruptcy happen. They wonder if the risk they are taking by investing in stocks is worth it. These apprehensions stem from some common myths about investing stocks. Investors need to have a realistic idea of the stock market before they take the plunge. Five of the most common myths are discussed below.

1) Stock Market Investment is akin to gambling.

This misconception would sound very ridiculous for stock market experts. This is one of the primary reasons why most people shy away from stock market investments. For these people, shares are like a trading vehicle. They forget the fact that buying shares is buying a part-ownership of a company. Whenever a company generates profits, the holder of the shares is entitled to receive a part of it. It also entitles him to a claim on the assets of the company. Stock prices fluctuate when investors constantly attempt to assess the profits left over for shareholders. Moreover, a company’s outlook and its future earnings always keep changing. These fluctuations are quite natural.

Gambling creates no value in a transaction. It is like taking money from one person to give to another. Investing, on the other hand, leads to growth of the economy. As the economy grows, there is greater competition amongst companies leading to an increase in productivity. As a result, they manufacture products that better our lives.

2) The Stock Market is a club restricted to brokers and affluent people alone.

Recent studies have shown that anybody can invest in stocks. You need not have a lot of experience in analyzing stocks. Although brokers claim that they can predict the market, their prognostics have been inaccurate most of the time. As a consumer, you are empowered with the most effective tool – the internet. You have the access to all data and research about the market, which was available only to brokerages earlier.

As individuals, you are not under a lot of pressure to produce high returns in a short period, unlike money managers. Hence, you can afford to be long-term oriented.

3) Fallen stocks will rise eventually

This misconception could prove very disastrous for investors. It might sound like a good idea to buy a stock that hit a high recently, but fell back sharply. You do it with the hope that the stock will rise up to those levels again. The hard truth is – a fall in market price is never a good reason to buy a company’s stocks. A better way to do it is to buy a good stock at a reasonable price.

4) Stocks that rise must come down.

The law of gravitation has no connection to the stock market. This myth often forces people to wait till the stock value comes down before they can invest again. Eventually, the stock keeps rising and they end up regretting not having bought it at a lower price.

5) Investing in the stock market requires only a little knowledge.

It cannot be denied that knowing a little is better than knowing nothing. However, when you are investing in the stock market, you need to have a clear understanding of what you are doing with your money. Do not invest when you have not done enough research and gathered enough data to help you take a wise decision.

If you feel you cannot do it all by yourself, there is no harm in hiring an advisor. Hiring an investor costs far lesser than the losses you might incur if you invest in something you do not understand.

Remember the old adage, ‘a little learning is a dangerous thing,’ before you invest in the stock market. As an individual, you must have a clear understanding of how stocks function. And remember, popular misconceptions are not the ultimate truth. Make sure you are demystified about the stock market before you spend your money.

Takeovers and takeover rumors have been running rampant on Wall Street lately. While takeovers usually have a bad connotation, the result of the rumors and official announcements have been assisting the US stock market in staying positive for the most part. The market is set up to open higher today as reports surfaced that Alcan, Inc. refused a $26.7 billion takeover bid from Alcoa, Inc. Rumor has it that Alcan, Inc. is discussing a merger with BHP Billiton, but also stated that it may make a bid for Alcoa, Inc. This news has investors thinking that bids from other companies will soon follow. Other takeovers that seem to be moving the market include Morgan Stanley’s plans to acquire Crescent Real Estate for a reported $6.5 billion. Also, discount shoe retailer Payless ShoeSource is purchasing the children’s favorite in shoes, Stride Rite for approximately $800 million. One other purchase worth noting is Amazon.com’s announcement Wednesday morning to widen their book selection by purchasing Brilliance Audio, who is an independent publisher of audio books.

While the market is set to open higher due to takeovers and acquisitions, investors are waiting to hear about the gasoline inventory report. With Memorial Day weekend ushering in the unofficial start of summer beginning late Friday afternoon as people leave work, demands for gas will be high as people are traveling to the beach and other mini-vacation destinations. The gasoline inventory report will show whether or not US refiners have produced enough gas to meet demands for this weekend and this report will surely be one to make the market move. There are no other economic reports due out today, however, Treasury Secretary Paulson is set to report on trade talks with the Chinese officials. Thursday will see the Commerce Department’s report on durable goods. In anticipation of this report, investors may go ahead and take their trading positions a day in advance.

Tuesday saw several companies post profits. Among the companies that reported include Forest Laboratories, Inc. and Cypress Biosciences Inc. These companies reported that their study involving a late-stage Alzheimer’s drug is showing extremely promising results. Their announcement forced their stock shares to go up in after hours trading. Other market movers include, The Target Corporation who reported just before the opening bell on Wednesday. Their first quarter financial reports revealed an 18 percent increase. While this is excellent news for the second largest discount retailer in the United States, it is still shy of expectations. The 18 percent increase equates to almost $651 million dollars or 75 cents a share.

Earlier this year Target reported that same-store sales for April were down 6.1 percent. Target placed the blame for the decrease in profits on an earlier Easter. However, their February and March sales prove strong enough to curb any other profit losses. Prior to the opening bell, Target’s shares soared $1.71 per share. Ross Stores also reported before the opening bell and they too had good news to share. The discount retailer of clothes and accessories reported a .43 cent increase per share of stock. This is inline with both the company’s and analyst’s expectations. Medtronic also announced a surprising profit increase last night that left it stock shares increasing by 4% this morning. Finally Gamestop as well reported prior to the opening bell and was able to beat all estimates by .02 cents per share making their total profit increase .18 cents per share. Many other retailers are also set to report on Wednesday, including Abercrombie & Fitch as well as the Limited Company. Investors should keep in mind that the markets will be closed on Monday, May 28 in observance of Memorial Day.