Crude price rally to benefit Indian equities
Published On: Thursday, November 26, 2020 | By: Team KnowMyStock
The Indian equity markets corrected yesterday(25th November 2020) after hitting a lifetime high earlier in the day. The benchmark Nifty50 index ended with losses of around 200 points, the biggest one-day fall in nearly a month. This sharp reversal was attributed to a rally in crude oil prices. On Wednesday, Brent crude price hit an eight-month high of $48 to a barrel as traders bet on a faster-than-expected recovery in energy demand and a likely production cut by members of the Organization of Petroleum Exporting Countries (Opec) and Russia later this month. Some analysts believe higher crude oil prices could significantly increase India’s energy import bill creating pressure on the current account balance, apart from raising input costs for companies in sectors ranging from metals and mining, chemicals, paints, personal care, cement, petrochemical, plastics, and agro-chemicals.
This will reverse the gains India Inc has seen from lower energy and commodity prices that accrued in the two previous quarters. Lower input prices cushioned the blow to corporate earnings from Covid-19 and companies reported good margins and net profits in Q2FY21 despite lower volumes and revenues.
In fact, there is positive correlation between crude oil prices and Indian equities and investors can expect more upside after the recent rally in Brent crude price. “Crude oil prices are now up nearly two-and-a-half times from their March lows while Nifty50 is up nearly 70 per cent during the period. So, both are moving together and I expect this correlation to remain intact even in future,” experts opinied.
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