As crude oil price hits roof, paints, aviation, chemicals likely to see adverse impact; Oil India, ONGC, HPCL, GAIL, BPCL to benefit

The Indian markets on Wednesday witnessed weakness, snapping the two-day gain on the back of rising oil prices. The significant uptick in crude oil prices as a result of Russia-Ukraine crisis is likely to have a cascading effect on several sectors including paints, aviation, Oil & Gas.  

Raghvendra Nath, managing director of LadderUp Wealth Management suggests investors to keep a close watch on the sectors such as Oil & Gas, Paints, Chemicals, Cement, Automobile, Aviation which may get impacted due to increase in crude oil prices. 

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Similarly, Vijay Bhambwani, Head of Research Behavioral Technical analysis at Equitymaster said that the inflation being the primary concern and can hit consumption, the industries which will be hit first one that use oil and petchems as raw materials like plastics, resins & epoxy adhesives, fertilizers, FMCG, personal care and others.  

Shares of paint makers like Asian Paints, Akzo Nobel India, IndiGo Paints, Kansai Nerolac Paints and Berger Paints fell on Wednesday on rising crude prices. The paint industry uses crude oil derivatives such as monomers and titanium dioxide as raw materials. 

The same impact may also been seen on Aviation, Chemicals, Plastics, Cement, Automobile among others as the raw material prices of these companies may surge with rising oil price. 

On the contrary, rise in crude oil prices is a boom for oil marketing companies such as Oil India, ONGC, HPCL, GAIL, BPCL among others and the shares of these companies surged up to 10 per cent on the BSE intraday on Wednesday. 

Russia’s invasion in Ukraine, followed by sanctions on former has forced the global crude oil prices to touch a new all-time high since 2014 on Wednesday. India, one of the largest crude oil importers may see a cascading impact on economic growth and likely to disturb the fiscal math of the country.  

In this regard, the analysts explain how deteriorating the situation at present was and how would it play outgoing forward. Nath of Ladderup Wealth noted that the spike in oil prices will not only lead to a higher trade deficit and but also lower corporate earnings and in turn lower tax collections.  

Similarly, Vijay Bhambwani - Head of Research, Equitymaster mentioned that every $10 per barrel price rise over $100 level adds $15 in deficit to India’s economy. Oil price sustaining between $115-120 per barrel can cause economic pressure, he added.  

On the brighter side, Raghvendra Nath said, “If India and Iran can close on their long pending discussion regarding supply of oil, it will act as a breather for India.” He estimates, there is a likelihood that the situation may worsen depending on how the conflict progresses and what kind of sanctions are imposed on Russia.   

Motilal Oswal in its India Strategy report states that From India’s viewpoint, a sharp spike in crude oil prices poses key risks on the external balance front and can play spoilsport with the assumptions made in the FY23 Union Budget.   

Higher crude oil prices, if sustained for an elevated duration, can result in higher inflation, current account deficit, bond yields, and interest rates in India and thus impact macro-economic stability, the domestic brokerage house said in the research report.