INSUBCONTINENT EXCLUSIVE:
The rise is oil prices has increased input costs for a wide range of sectors.Earlier this month, we wrote to you about the stocks that will
benefit as crude oil prices rise.In this article, we discuss the extremely volatile nature of oil prices and how investors should be careful
before investing is any stock that is related, directly or indirectly, to the oil - gas industry.Stocks from different sectors are facing a
lot of stress due to commodity price inflation
The rise is oil prices has increased input costs for a wide range of sectors.Following the start of Russia's invasion of Ukraine, the
price of petroleum, natural gas, metals, and agricultural goods skyrocketed.Let's take a look at the top 4 sectors that are poised to
suffer as crude oil prices soar.1
PaintsThe industry, which was already suffering from low demand due to the pandemic, is once again under pressure.We are taking about the
paints industry.The price of titanium dioxide (TIO2), a crucial raw ingredient used in the production of paint, is likely to climb with the
TIO2 is a crude oil derivative
The increase in raw material cost will raise the cost of manufacturing
This will hit their gross margins.Out of total raw material costs incurred by paint manufacturers, 50%-60% is due to crude oil and its
In recent months, many Indian paint companies have raised their prices numerous times, but not enough to offset increasing raw material
costs.This is the main reason behind the denting of investors' confidence in paint stocks.Another factor that may worry the industry is weak
demand from commercial real estate and the auto industry.Many paint stocks including sector leader, Asian paints, has corrected over 15%
since the start of the year.Besides the market leader, Berger Paints has also lost up to 13% in the same period
AutoIt seems the Indian auto industry is heading towards a spell of disruption amid high competition and rising raw material costs.The spike
in international crude oil prices has come as another blow to India's beleaguered auto sector.The auto industry had just begun to see
light at the end of the tunnel in January 2022, in terms of addressing the semiconductor shortage, but the crisis in Ukraine has made the
situation even worse.As oil prices are rising, freight rates are also moving upwards, affecting the cost of raw materials.Apart from
price hike following the elections.Shares of Tata Motors and Maruti Suzuki are witnessing heavy selling pressure
The stocks of both the companies are trading down by 16% and 5.5% over the last two months.Meanwhile, Mahindra - Mahindra (M-M) and Ashok
Leyland have delivered poor returns of 11.4% and 17.1% on the BSE for the same period.3
AviationAirline stocks are very sensitive to the movement of crude oil prices.If the price of oil continues its upward rally, it would lead
to an increase in aviation turbine fuel (ATF) prices.This is a worry for airlines as fuel accounts for a lion's share of their operating
As per reports, 40% of the raw material cost in any airline, is for ATF
Rising ATF prices will have a direct impact on the company's profitability.To combat this, airlines in India have opted to pass on the
rising cost of jet fuel to passengers, leading to a sharp rise in airfares
As demand grows, prices are also expected to rise further.Aviation turbine fuel has surged 63% over the past year to a record high
On March 1, 2022, jet fuel price shot to Rs 96,478 per kilolitre.The rate is higher than the previous record of Rs 71,028 per kilolitre
ChemicalsMany chemical producers were caught off guard by the substantial rise in oil prices
The economic repercussions of the Ukraine-Russia conflict are being felt across the global chemical industry.The chemical sector's
fundamentals also had just recently begun to improve but the war has reignited concerns
Going ahead, there's a possibility that profit margins will be impacted.Crude oil is a major cost driver in the petrochemical industry
because many of the key chemical building blocks (aromatics, ethylene, and propylene) for the industry's products are directly produced
from oil or its derivatives (naphtha and liquefied petroleum gas).Some chemicals, such as chlorine, are manufactured in very
energy-intensive ways and have a significant relationship to oil prices
Oil price fluctuations have a direct and considerable influence on the cost of these compounds.Aside from that, the depreciation of the
Indian rupee against the Chinese renminbi suggests increased competitiveness for exporters who compete directly with Chinese firm.These
concerns have dented the stocks' performance on the bourses
Deepak Nitrite, NOCIL, and Alkyl Amines have tumbled up to 20% year to date (YTD)
Shares of the largecap chemical company, UPL is down by 5% YTD.Apart from these sectors, consumer durables, fertilisers, FMCG, cement, and
real estate will be under pressure due to the commodity price rise due to the crisis.Should you stay away from these sectors?The duration of
the conflict and the impact of sanctions on Russia and its crude oil supply will play a crucial role in the turnaround of all these
industries in the coming months.If the war like situation continues, these sectors won't deliver a good performance in the short-to-medium
term due to rising commodity prices.Also, the trend of US inflation, the European Central Bank's monetary policy, and the post-election
environment could create more headwinds.As a result, investors need to be very careful when choosing stocks from these sectors
Focus on firms that can withstand storms as they will be better positioned to succeed.Happy Investing!Disclaimer: This article is for
information purposes only
It is not a stock recommendation and should not be treated as such.(This article is syndicated from Equitymaster.com)(This story has not
been edited by TheIndianSubcontinent staff and is auto-generated from a syndicated feed.)
