Global crude oil prices inched upward to hit its highest level ($ 80 per barrel) since November 2014 on the back of geopolitical fears over potential supply disruption after US withdrew from the Iran nuclear deal as well as supply shocks in Venezuela, Mexico and Libya.
But why is crude so important for India? India is a net importer of crude oil and imports nearly 80 percent of its oil requirement. A meaningful rise in Brent prices will strain India’s fiscal/current account deficit, trigger inflation concerns for the Reserve Bank of India (RBI) and also dent hopes of a credit rating upgrade for India.
“India imports 3 million barrels per day (net) of crude oil, resulting in a sensitivity of $ 11 billion: 40 basis points impact on GDP for every $ 10/bbl move in oil,” Sumit Pokharna, Deputy Vice-President Research at Kotak Securities, said. He added that higher crude oil price will increase raw material cost, working capital requirements and operating cost for user industries such as lubricants, chemicals (including consumer staples) and paints.
Sectors which are likely to see increasing pressure thanks to a rise in crude oil prices are upstream oil companies. However, the same will be positive for export-oriented sectors such IT and pharma as rise in crude will put pressure on the currency as well. Bhupendra Tiwary of ICICI Securities see sectors like airlines, paints, tyres, plastics and select fast moving consumer goods (FMCG) companies which use crude and its derivatives as their input being impacted the most.
The impact of rising crude oil prices is clearly visible on the USD:INR. The rupee depreciated about 7 percent since January as CAD has increased.
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the twin deficit issue of fiscal and CAD could come back to haunt policymakers. “Every $ 10 rise in crude raises India’s inflation by 10 bps and negatively impacts GDP growth by 30 bps. If the high prices sustain, India’s trade deficit, current account and fiscal deficit will deteriorate.”
He sees no further room for passing on the rise in crude prices to consumers. “The government has gone on record that excise reduction will be considered only if crude goes beyond $ 75 a barrel. Therefore, some excise duty cuts are on the cards.”
Some excise duty cuts might be on the cards as we approach state as well as national elections in the next 12 months. But the flipside to the excise cut is that it will expand the fiscal deficit, experts fear.
Reacting to rise in global crude oil prices, retail prices back home have also surged to record highs. Petrol and diesel prices on Monday touched a record high of Rs 76.24 and Rs 67.57 per litre as state-run companies passed on the four weeks of relentless rise in international oil prices to consumers.
Here is a list of top 10 stocks from different experts which are likely to be impacted the most from a rise in crude oil prices:
Analyst: Arpit Chandna, Fundamental Analyst, Karvy Comtrade Ltd:
Rising crude oil price is an assertive risk for any country’s economy and its investors, as oil prices directly impact the real income and spending of all the sectors of the economy.
Gail India, the impact will be mixed to positive. For the paint sector which depended heavily on crude oil which forms part of the raw material cost will be negative. Asian Paints will be in focus as a rise in crude oil price will increase the input feed for the chemical.
Under aviation theme, Interglobe Aviation will be one stock which will be in focus. The rise in crude oil prices will be negative for the airliner as their fuel cost will increase. Remember, InterGlobe Aviation reported 73.30 percent YoY drop in profit at Rs 117.64 crore for March quarter.
OMC companies such as IOC, BPCL, HPCL will remain under pressure as their margins will be less.
ONGC: The exploration and production sector will have a positive impact of higher oil prices as it will be an opportunity for them to churn out the profits by pumping out more of crude oil. The rise in crude oil prices will have a positive impact on the stock.
Analyst: Dinesh Rohira, Founder & CEO, 5nance.com
The companies engaged in oil exploration and production is likely to have a direct impact with names like ONCG, Petronet LNG having a positive benefit.
Further, companies in aviation business like Jet Airways, SpiceJet will get negatively impacted by the rise in crude oil prices due to increased input cost, and pricing power.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.