High Oil Prices

Crude oil prices have more than doubled from $32 per barrel (their 52-week low levels) to almost $80 per barrel.

• If the price of crude oil continues to increase and if the government decides to pass on the additional cost to consumers, it is expected to lead to an increase in inflation at a much faster pace compared to the anticipated level of 6% by March 2010.
• If the price increase is not passed on and the government bears the hike in the price of crude oil, then the fiscal deficit situation is expected to worsen further from the budgeted 6.8%. If the fiscal deficit figure, which is closely monitored by investors, rises beyond an extent then it can negatively impact the broader markets.

This could reduce the pace of growth of Indian economy. The silverlining will be high government spending & domestic demand.This can impact on the margins of companies in various sectors.

The worst hit would be companies that rely on petro products either as feedstock or for meeting their energy needs. The list includes companies in sectors as diverse as tyres, cement, fertilisers & chemicals, synthetic textile etc.

• Some of the leading firms that will be affected in the tyre industry include Apollo Tyres, MRF, Ceat and JK Tyre, among others.
• Among fertiliser companies, Chambal Fertilisers, Zuari, RCF and Nagarjuna Fertilisers will take the maximum hit.
• In the textile sector, the impact would be felt by companies like Century Enka, Vardhman Textile, Garware Wall-ropes and RSWM, among others.
• With its fortunes directly linked to international prices of aviation turbine fuel (ATF), stocks of Deccan Aviation, Jet Airways and Spice Jet could be another casualty of rising oil prices.

But some sectors & companies will benefit from high oil prices.

• The companies involved in productions of oil like ONGC, Reliance Industries and Cairn India, OIL will be benefitted.
• Some other sectors that would be positively impacted because of high crude prices are offshore services providers Great Offshore, Aban Offshore, Garware Offshore and ancillaries like Selan Exploration and Shiv Vani Oil.
• Shipping companies Varun Shipping, Shipping Corporation of India, GE Shipping and Essar Shipping, which carry crude, are also likely to benefit as demand will be higher.