INSUBCONTINENT EXCLUSIVE:
Mumbai: A fall in crude oil prices is perceived to be a positive for the Indian economy as well as stock markets
The relationship between the Sensex and crude has mostly been inversely proportional
Eight out of ten times when crude has fallen by more than 20%, Indian stock markets have offered average returns of 19% in the following six
months.
Falling oil prices have been a boon for Indian policymakers and a key factor for the domestic macroeconomy, as the country imports
nearly 85% of its crude oil requirement
It will lend a big boost to several sectors and help contain fiscal deficit
The biggest beneficiaries in this scenario are companies in sectors such as oil marketing, paint, tyre, speciality chemical, plastic piping,
aviation and cement, because most of them use crude oil as a raw material, said analysts.
"Sustained lower crude oil prices in the near term
to benefit India meaningfully given a reduction in current account deficit and enhancement of the fiscal headroom due to lower cooking fuel
subsidies and plausible hike in excise duties on auto fuels," Kotak Securities analyst Tarun Lakhotia said.
Brent crude futures plunged $14,
or 32%, to hit a low of $31.02 a barrel on Monday
This was the sharpest percentage drop since January 17, 1991, at the beginning of the Gulf War
A $10 per barrel decline in crude oil prices on an annualised basis reduces current account deficit by $15 billion and increases fiscal
headroom by $1.9 billion, due to a reduction in cooking fuel subsidies and $8.5 billion of potential revenue from a Rs 4.50 per litre
increase in excise duties on auto fuels.
However, some analysts said crude prices were just one of the many factors
While falling crude prices may have a short-term positive impact on Sensex returns, a long-term recovery and performance is unlikely to
current scenario when the prices are down because of low demand rather than oversupply, said Abhimnayu Sofat, the head of research at IIFL
Securities "Once the coronavirus scare is over and the global risk situation eases, demand should be back
In the near-term, however, companies like Castrol, tyre firms like MRF, which use crude derivatives, should benefit
Airlines and transportation sectors should also benefit, though they face another headwind in the form of the corona epidemic" he added.
