Companies to bear rising oil price burns
Spiralling crude oil prices are likely to take a toll on the margins of cos in sectors like fertiliser, textiles, pharma, automobile, tyre, paints and aviation. World News & Trends
MUMBAI: The spiralling crude oil prices are likely to take a toll on the margins of companies in sectors like fertiliser, textiles, pharma, automobile, tyre, paints and aviation.
In fact, a recent report by Goldman Sachs has forecast oil prices rising as high as $150 to $200 within two years. Analysts say a weak US dollar and worries about falling production in Mexico and Russia also pushed prices higher. The US investment bank had three years ago predicted that oil would break through $100. Crude oil was trading at about $122 a barrel on Wednesday.
Shahina Mukadam, head of equity research, IDBI Capital Markets, feels that rising oil prices are increasingly becoming a major concern. ���While so far the direct impact has been limited, if prices retain this momentum, it could adversely impact companies. The market is in a wait and watch mode,��� she said.
In fact, a recent report by Goldman Sachs has forecast oil prices rising as high as $150 to $200 within two years. Analysts say a weak US dollar and worries about falling production in Mexico and Russia also pushed prices higher. The US investment bank had three years ago predicted that oil would break through $100. Crude oil was trading at about $122 a barrel on Wednesday.
Shahina Mukadam, head of equity research, IDBI Capital Markets, feels that rising oil prices are increasingly becoming a major concern. ���While so far the direct impact has been limited, if prices retain this momentum, it could adversely impact companies. The market is in a wait and watch mode,��� she said.
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���The government cannot keep prices of oil low for very long. Higher crude prices would also result in economy slowing down a bit. Then there���s the scare of inflation. This could result in a hawkish stance from the Central Bank. The cost of borrowing and raw material prices will go up for companies,��� she adds.
Some of the companies that will be affected in the fertiliser space include Chambal Fertilisers, Zuari, RCF and Nagarjuna Fertilisers, while those to be affected in the textile space are companies like Raymonds, Vardhman and RSWM.
Companies in the paints sector ��� Asian Paints, Nerolac and Berger Paints ��� will also be adversely impacted if they do not pass on the higher raw material cost to the consumer. Automobile and tyre manufacturing companies could see further investor apathy, in the wake of slowing demand.
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 ���boiling��� oil prices. Analysts maintain that investors should preferably invest in companies like ONGC, Reliance Industries and Cairn India, particularly if oil continues to scale higher levels.
Some other sectors that would be positively impacted because of high crude prices are oil rig companies like Great Offshore, Aban 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.
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