Paint, tyre, oil marketing and aviation companies cheer fall in crude oil prices

A drop in oil prices is typically positive for India since the country is a big importer of crude. In the past 5 days, brent crude futures have dropped 3.9% and 13.7% in the past month to below $70 a barrel for the first time in three years due to concerns over a downturn in the US and China. Brent crude futures were up 1.2% to $ 69.7 on Wednesday, resulting in shares of companies that could benefit from a fall in crude surging. Domestic industries such as paints, tyres, oil marketing companies and airlines are among the biggest beneficiaries of falling crude prices globally.

Oil exploration companies are the worst hit. A look at what’s in store for shares in these segments: PAINTS Crude oil derivatives comprise almost 35% of paint makers’ input costs, said analysts. “Paint companies are likely to benefit from the decline in crude oil prices since its raw material is a crude derivative,” said Sumit Pokharna, VP and oil analyst at Kotak Securities. “However, these stocks have moved up quite a lot and the valuations are expensive in this space.”

Asian Paints gained 2.23% while Berger Paints India and Kansai Nerloac advanced close to 2.5% each on Wednesday. “Although paint stocks have moved up today, they are likely to see the benefits with a lag as they typically carry 1-2 months of raw material inventory,’ said Nikhil Ranka, CIO equity alternatives, Nuvama Asset Management. OIL MARKETING COMPANIES (OMCS) Although lower crude oil prices are anticipated to be positive for OMC stocks, most of these declined on Tuesday due to the market expectation of the government slashing retail prices.

Indian Oil Corp declined 3.11%, Bharat Petroleum and Hindustan Petroleum fell 1.49% and 2.69%, respectively.

These companies can see a positive impact of lower crude oil prices, said analysts.

“The marketing margins of OMC companies have expanded and the gains on marketing margin could outweigh the impact of inventory losses,” said Swarnendu Bhushan, co-head of research, Prabhudas Lilladher. “The upside is limited, however, due to high valuations.” AVIATION InterGlobe Aviation rose 1.16% on Wednesday while Spicejet fell 3.89%.

“Aviation is likely to be a key beneficiary of the falling crude prices since fuel is the biggest cost component in aviation and additionally yields have remained stable,” said Ranka. TYRES Since Tyre companies use natural and synthetic rubber as raw materials, and the cost of synthetic rubber is dependent on crude oil, a price drop would benefit them. Ceat Tyres moved up 0.64% and Apollo Tyres and MRF Tyres advanced marginally on Wednesday.

OIL EXPLORATION COMPANIES Oil drilling companies could be adversely impacted by the decline in crude oil prices as the realisations are expected to take a hit. Oil India fell 4.31% while Hindustan Oil Exploration and ONGC tumbled