If inflation surpasses RBI’s comfort level of 4 percent, chances
of a rate cut will also vanish which could put further pressure on equities
In April, Indian market scaled record highs even as crude
prices inched higher, now trading above USD 71/bbl (around November
2018 highs). Crude price rose from $53.80/bbl on December 31 to $71.64/bbl
on April 17, an increase of over 33 percent.
Foreign investors poured
money into equities on the back of renewed hopes of a stable government at the
Centre after the elections and on another round of rate cut by the Reserve Bank
of India.
So far, the Street has
ignored all the headwinds but how long will that last? Can the rising global
crude prices jolt the rally in the Indian market?
Experts feel that as long as
crude is trading around $70/bbl, the market will remain stable, but a sell-off
in equities could be seen if oil breaks past $80/bbl.
How crude prices affect India
A rise in crude oil prices
not only leads to an increase in the raw material cost for companies (where it
is used as a raw material) but also fuels inflation in the economy.
If inflation surpasses RBI’s
comfort level of 4 percent, chances of a rate cut will also vanish which could
put further pressure on equities.
India imports about 85
percent of its oil requirements. Higher oil prices have a multiplier effect as
various numbers like the balance of payments, currency and current account
deficit worsen.
“It is important to note that
if rise in crude is accompanied by economic growth, the negative effects are
offset by growth. Sentimentally, the threshold limit of $80 has seen sell-off
in equities, currency, and bond market in the past, so that is the number to
watch,” Prabhakar Kudva, Founder Director, Samvitti Capital told Moneycontrol.
“In the present scenario, if
growth (both global and local) bounces back sharply the impact of crude could
get negated, as it has happened in several bull markets in the past. A rough
estimate suggests every $10 appreciation in oil price results in a 10
basis points jump in retail inflation,” he said.
Crude prices have an impact
on inflation, bond yields, and currency.
The impact of crude oil
prices will be more visible on India Inc. from Q2 onwards if crude prices
remain at elevated levels, suggest experts
However, some businesses have
pricing power and should be able to pass it on the end customers, hence one
needs to take a stock-specific view.
“A lot of Indian companies
depend on healthy crude oil prices, this includes tyre, lubricants, footwear,
refining and airline companies whereas oil exploration companies in the country
could benefit from a rise in oil prices,” Ritesh Ashar - Chief Strategy Officer
- KIFS Trade Capital told Moneycontrol.
“We don’t see any reason to
worry at this level for investors. In fact, India has the ability to perform
well even at the level where crude price rises till $75/bbl. The real reason of
concern for the investors would be near the level of $80/bbl which can be
considered as the threshold level which could disrupt macros and hurt
earnings,” he said.
Here is a list of 4 stocks from Ritesh
Ashar that are crude price sensitive:
Castrol India
Base oil is the raw material
for the company and hence it is dependent on the movement of oil prices and
rupee against the US dollar.
Base oil is derived from
crude oil, and makes up 53 percent of India's total imports. So, the rise in
crude oil price will impact the margins of Castrol.
Hindustan Petroleum Corporation
Rise in crude oil price will
result in low earning growth in oil marketing companies. HPCL will be impacted
negatively with the rise in the price of crude oil as it would result in a
decline of its GRMs.
GAIL India:
Gail will benefit from higher
crude prices as this will increase the utilization of petrochemical capacity
and there will also be a boost in gas utilization thus increasing its complete
energy imprint.
Oil & Natural Gas Corporation
Movement in oil prices and
the government's formula of subsidy sharing decides the performance of this
counter. Looking at the current market scenario and the rise, which is already
seen and expected, ONGC is one counter that will benefit from increase in
prices.
Source: https://www .moneycontrol.com/news/business/markets/sensex-hits-record-highs-even-as-crude-inches-up-equity-sell-off-on-cards-3851131.html
Financial
Advisory Company in Indore, Stock
Advisory Company in Indore, Equity Tips, FreeTrading Tips , MCX Tips, sebi registered advisory company, Intraday
stock tips, Free
commodity tips
0 comments:
Post a Comment