Oil prices have been on the boil lately — at petrol pumps across India, Indians have been shelling out more money for petrol and diesel. But apart from making commutes more expensive, rising oil prices can also impact India’s stock markets and the prices of stocks.
Impact of rising oil prices on the prices of India’s stocks
1.Oil marketing companies: The most direct effects of rising oil prices is seen on the stocks of oil marketing companies like Indian Oil Company (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Limited (BPCL). These companies purchase oil from oil producing companies such as ONGC and Reliance, refine it, and then market and sell it. Oil, thus, is an input to their business — as the price of oil rises, their input costs rise, and their profits are lowered. As a result, higher oil prices typically lower the prices of oil marketing companies like IOC, BPCL, and HPCL.
2. Oil producing companies: Another set of companies whose stock prices are impacted from higher oil prices are the oil producing companies. Companies like Reliance and ONGC (Oil and Natural Gas Corporation), and Petronet LNG drill for oil and then sell it. As the price of oil rises, the revenues of these companies typically increases, and thus their stock prices rise.
3. Aviation stocks: Another industry that relies on oil as its chief import is the aviation sector. Airlines use large amounts of oil to fly their jets on a daily basis, and as the price of oil rises, their costs of running their operations also rises. If these companies can’t immediately pass on the higher prices to their consumers, their profit margins are lowered, and their stock prices fall. Companies in this space whose stock prices are negatively impacted by higher oil prices are Interglobe Aviation (Indigo), Jet Airways, and SpiceJet.
4. Paint stocks: One of the chief raw materials required to manufacture paints is oil products, and as such stock prices of paint manufacturing companies usually fall when the price oil rise. Prices of stocks like Asian Paints and Nerolac are usually inversely correlated with stock prices.
5. Tyre stocks: Tyre companies also use oils as a raw material to manufacture their products; as such their prices fall when oil prices rise. Such stocks whose prices all when oil prices rise are Apollo Tyres, JK Tyre, etc.