Brent's rise leaves a crude impact on user companies & shares
crude prices tends to be bad news for India as it has always weighed down on the economy in the past. With Brent crude futures at about $95 a barrel due to supply cuts by oil producing countries like Saudi Arabia and Russia, market participants have begun evaluating its impact with the country importing more than 80% of its oil needs.
In addition to the economy, companies in various sectors such as paints, tyres, oil, cement, and aviation also feel the direct pain of rising prices as crude is a key raw material for many of them.
ET looks at the impact of rising crude prices on these sectors and stock prices:
Oil Marketing Cos (OMCs)
Analysts see profitability of oil refining and marketing companies getting squeezed on account of the firming crude oil prices.
«Since gross margins are lower in diesel and petrol, bleeding in OMCs is expected to continue,» said Swarnendu Bhushan, co-head of research at Prabhudas Liladher. «In OMCs, the refining margins are strong, but the marketing margins are lower.
If the crude oil prices remain above $90 post the second quarter, then margin downgrades can occur.»
OMC shares will remain subdued, and the underperformance will continue. "ONGC, GAIL and Gujarat Gas are some stocks that can withstand the pressure from rising crude prices," said Bhushan.
Paints
Paint companies are likely to witness earnings downgrades, given the industry's heavy dependence on oil derivatives.
«About 60-65% of the total raw material cost of paint can be attributed to crude oil derivatives,» said G Chokkalingam, founder, Equinomics Research. He said market leaders might be able to withstand the cost pressure, but the overall impact will be negative.
Read more on economictimes.indiatimes.com
