Mid-East Tensions: Crude Rally’s Impact On Indian Stocks
Stock Market globally is facing uncertainty over the war clouds in the Middle East. As oil prices fluctuated, Indian indices were also volatile during the rabble-rousing between Iranian and American leadership since the assassination of General Qasem Suleimani of Iran by US drone attack. Which are the ‘War Sensitive” stocks in India? Prem Doshi of Ace Equities analyses exclusively for GoNews.
Crude Rally’s Impact on Indian Stocks
Even though the US-Iran tension currently seems to have cooled off, during the conflict Brent Crude futures went up from 65$ per barrel to almost 72$, about 10% in just a couple of days. A rally in crude price is negative for emerging and oil-importing economies India since the import bill increases which in turn puts pressure on the trade deficit and the rupee against the dollar. While Brent Crude is back around 65$ now, In-case the Iran-USA conflict heats up again we need to eye major stocks and sectors that can get harshly impacted. Oil Marketing Companies:
Key stocks: HPCL, BPCL, IOC, – Oil marketing companies tend to lose marketing margins when crude prices rally, Even though petrol diesel prices are said to be de-controlled and de-regulated, the profits of OMCs can come under pressure as the government would look to contain the impact of crude price rally on general population.
Aviation:
Key stocks: Spice Jet, Interglobe Aviation (Indigo) – A rally in crude prices automatically pushes the Oil marketing companies to hike the price of Air Turbine Fuel/Jet Fuel which puts pressure on the Aviation industry.
The air ticket pricing is generally dominated by demand and supply situation and a simple cost plus margin price formulation does not work out in this industry so the profits of aviation companies can be harshly impacted in case Crude keeps going north.
Paint:
Key stocks: Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel – Paint companies consume a lot of crude oil derivatives as raw material for enamels and other paint products, according to various analyst estimates the crude derivatives make up almost 35% of the total raw material costs for paint companies.
While there is room for paint companies to pass on the increase in cost to the customers by hiking paint prices, an overall sluggish economy and weak demand scenario does not allow significant hike in product prices.
Tyre:
Key stocks: MRF Ltd, Balkrishna Industries, Apollo Tyres, Ceat Ltd, JK Tyre, Goodyear –
Synthetic rubber and other crude oil derivatives make up significant part of raw material costs for the tyre sector.
At a time when Auto Sector has been making a lot of headlines for continued slowdown, a sharp rally in Crude will not be digested well by the street.
Even though the US-Iran tension currently seems to have cooled off, during the conflict Brent Crude futures went up from 65$ per barrel to almost 72$, about 10% in just a couple of days. A rally in crude price is negative for emerging and oil-importing economies India since the import bill increases which in turn puts pressure on the trade deficit and the rupee against the dollar. While Brent Crude is back around 65$ now, In-case the Iran-USA conflict heats up again we need to eye major stocks and sectors that can get harshly impacted. Oil Marketing Companies:
Key stocks: HPCL, BPCL, IOC, – Oil marketing companies tend to lose marketing margins when crude prices rally, Even though petrol diesel prices are said to be de-controlled and de-regulated, the profits of OMCs can come under pressure as the government would look to contain the impact of crude price rally on general population.
Aviation:
Key stocks: Spice Jet, Interglobe Aviation (Indigo) – A rally in crude prices automatically pushes the Oil marketing companies to hike the price of Air Turbine Fuel/Jet Fuel which puts pressure on the Aviation industry.
The air ticket pricing is generally dominated by demand and supply situation and a simple cost plus margin price formulation does not work out in this industry so the profits of aviation companies can be harshly impacted in case Crude keeps going north.
Paint:
Key stocks: Asian Paints, Berger Paints, Kansai Nerolac, Akzo Nobel – Paint companies consume a lot of crude oil derivatives as raw material for enamels and other paint products, according to various analyst estimates the crude derivatives make up almost 35% of the total raw material costs for paint companies.
While there is room for paint companies to pass on the increase in cost to the customers by hiking paint prices, an overall sluggish economy and weak demand scenario does not allow significant hike in product prices.
Tyre:
Key stocks: MRF Ltd, Balkrishna Industries, Apollo Tyres, Ceat Ltd, JK Tyre, Goodyear –
Synthetic rubber and other crude oil derivatives make up significant part of raw material costs for the tyre sector.
At a time when Auto Sector has been making a lot of headlines for continued slowdown, a sharp rally in Crude will not be digested well by the street.
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