How increasing Oil price affect indian market?
The recent spike in oil prices has significant implications for the Indian market, affecting various economic indicators and sectors. Here’s a detailed analysis of the impact:
Economic Impact
- Current Account Deficit: Every $10 increase in oil prices widens India's current account deficit by approximately 0.55% and raises the Consumer Price Index (CPI) by 0.3%
Given that oil constitutes a large portion of India's import bill, rising prices can strain foreign reserves and lead to currency depreciation. - Inflationary Pressures: Higher oil prices contribute to inflation, which can erode consumer purchasing power and dampen economic growth. This inflationary trend is particularly concerning for policymakers as it complicates monetary policy decisions
- Stock Market Volatility: The Indian stock market is sensitive to fluctuations in oil prices, with potential corrections of 10-15% anticipated if Brent crude prices breach the $85 mark due to geopolitical tensions
. The recent rise in oil prices has already led to a notable decline in stock indices, reflecting investor concerns over rising costs and profit margins - Paint and Tyre Industries: Companies in these sectors have seen significant stock price declines, with shares of major players like Asian Paints and Berger Paints dropping up to 6% due to increased raw material costs linked to rising crude oil prices. These industries heavily rely on petroleum-based products, making them particularly vulnerable.
- Aviation Sector: Airlines are likely to face higher operational costs due to increased fuel prices, which could lead to fare adjustments and impact profitability. This sector's sensitivity to oil price changes can lead to wider market repercussions as operational costs rise.
- Oil Marketing Companies (OMCs): Firms such as IOC, BPCL, and HPCL will experience increased input costs, which could squeeze their profit margins significantly. This situation may lead to reduced investor confidence in these companies.