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OMC and paint stocks rejoice, ONGC and Oil India in the red zone
Shares of paint companies were trading higher on Wednesday, rising up to 5% on the BSE, on the back of a fall in crude oil prices; Know why
A continued decline in Brent crude prices has come as a blessing for oil marketing companies and paint manufacturers, while at the same time, dented sentiment for oil refiners.
Crude oil prices have seen a sharp knock in overnight trading as concerns over the state of the two largest economies of the world – The US and China have reignited, triggering a sharp sell-off in the equity markets across Wall Street and the Asia Pacific as well.
A decline in crude prices benefits oil marketing companies (OMCs) and paint manufacturers as that reduces their input costs and gives them more leeway to generate higher margins. In addition to that, OMCs can also capitalise on inventory gains by restocking at reduced prices. Also, lower fuel prices may boost consumer demand, driving higher sales volumes, and lifting revenues for these players.
On the bourses, Asian Paints, Berger Paints India, Shalimar Paints, Kansai Nerolac Paints, Indigo Paints, and Akzo Nobel India gained in the range of 1 per cent to 5 per cent intraday today. By comparison, the BSE Sensex was down 0.64 per cent at 82,025 at 09:34 am.
Tyre stocks also saw some gains courtesy of the fall in crude oil prices in today’s trading session before they cooled off from the highs of the session. JK Tyre is the only tyre stock still holding on to gains of over 2 per cent.
However, on the flipside, the fall in crude prices will have a negative bearing on oil drilling stocks like ONGC and Oil India as it squeezes their profit margins. This is because the price of refined products may not drop as quickly or proportionately and hence, refineries holding inventories bought at higher prices may face inventory losses as the value of their stock decreases.
Consequently, shares of upstream companies — Oil India and Oil and Natural Gas Corp — were trading with cuts of over 1 per cent and 2.5 per cent, respectively.
US crude oil futures were down over half a per cent on Wednesday, extending their over 4 per cent fall on Tuesday, on signs of a deal to resolve a dispute that has halted Libyan crude production and exports. Bretn crude oil, meanwhile, tumbled 4.9 per cent Tuesday and was down 0.6 per cent today.
Oil prices posted their lowest close since December Tuesday, and have erased all gains for the year.
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