In September, there was a sharp drop in crude oil prices. According to statistics, oil from American and Gulf countries has dropped by more than 10 percent. However, the drop in crude oil prices is very important for a country like India, because it imports 85 percent of its needs. If oil prices fall, the country’s import bill will be reduced and the flow of foreign capital will also be reduced. The impact of which is quite positive on the country’s economy.
If we look at some figures, due to concerns about a recession in the United States and China, the price of Brent crude oil has fallen by about 4 percent in the past five days and by about 14 percent in the past month. What is special is that during this period the price of crude oil has dropped below $70 per barrel. Currently, that is, on Friday, the price of Brent oil is at more than $72 per barrel. However, the effect of the fall in crude oil prices has also been felt in the stocks of some companies on the domestic stock exchange. Shares of domestic industries such as paints, tires, oil marketing companies and airlines have seen an increase due to the fall in crude oil. On the other hand, a very negative impact has been seen on the stocks of oil extraction companies.
Impact on paint companies
Firstly, if we talk about paints, the share of crude oil in their input cost is 35 per cent. Kotak Securities Vice President and Oil Analyst Sumit Pokharna said in a press report that paint companies are likely to benefit from the fall in crude oil prices because their raw material is a derivative of crude oil. However, these stocks have risen significantly and valuations in this sector are expensive. On Wednesday, shares of Asian Paints rose 2.23 per cent. While Berger Paints India and Kansai Nerlok saw a rise of around 2.5 per cent. Nikhil Ranka, CIO Equity Alternatives at Nuvama Asset Management, said that although paint stocks have risen within a few days, they are likely to see gains with a lag as they usually have 1-2 months of raw material inventory.
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Will oil companies benefit?
On the other hand, if we talk about oil marketing companies, the positive effect of low crude oil prices is being seen in the shares of OMC. But due to market expectations of a reduction in petrol and diesel prices by the government, the shares of most oil companies fell on Tuesday. Indian Oil Corp saw a fall of 3.11 per cent, Bharat Petroleum and Hindustan Petroleum saw a fall of 1.49 per cent and 2.69 per cent respectively. Experts say that these companies may see a positive impact of low crude oil prices. Swarnendu Bhushan, co-head of research at Prabhudas Lilladher, said in a press report that the marketing margins of OMC companies have widened and the gains in marketing margins may offset the impact of inventory losses. However, the gains are limited due to high valuations.
What impact will this have on aviation companies?
Talking about the impact on the aviation sector, shares of InterGlobe Aviation on Wednesday saw a rise of 1.16 per cent. While SpiceJet fell by 3.89 per cent. Nikhil Ranka, CIO Equity Alternatives at Nuvama Asset Management, said that aviation is likely to be the main beneficiary of the fall in crude oil prices as fuel is the largest cost component in aviation and the performance is also stable.
tire stock status
On the other hand, tyre companies use natural and synthetic rubber as raw material and the cost of synthetic rubber depends on crude oil, so they will benefit from the price fall. On Wednesday, CEAT Tyres gained 0.64 per cent and Apollo Tyres and MRF Tyres gained marginally. Oil Drilling Companies: Falling crude oil prices may have an adverse impact on oil drilling companies. Oil India fell 4.31 per cent while shares of Hindustan Oil Exploration and ONGC saw a decline during this period.
