Key facts
- Brent crude oil prices fell over 5% to $85.80 a barrel on Friday.
- The decline in oil prices was attributed to optimism surrounding a potential US-Iran peace deal.
- Shares of oil marketing companies, tyre makers, airlines, and paint firms saw significant gains.
- Upstream oil producers experienced a decline in their stock prices.
- Companies sensitive to crude oil prices experienced a relief rally.
- India, a major oil importer, benefits from lower crude prices.
Shares of companies sensitive to crude oil price movements surged on Friday as oil prices retreated sharply, easing concerns over elevated input costs. Brent crude fell more than 5% to as low as $85.80 a barrel amid growing optimism around a US-Iran peace deal.
The pullback lifted shares of oil marketing companies (OMCs), tyre makers, airlines, and paint firms, which are key beneficiaries of lower crude prices. Conversely, upstream oil producers saw their stocks decline.
For India, a significant importer of oil, the decline in crude prices is typically positive. Analysts suggest that oil prices between $80-$90 a barrel are a 'sweet spot' for most sectors.
Oil marketing companies like Hindustan Petroleum Corporation, Bharat Petroleum Corporation, and Indian Oil Corporation saw gains. However, earnings visibility remains uncertain due to recent losses, with prospects improving if fuel prices are sustained.
Tyre manufacturers, whose input costs are heavily reliant on crude-linked products, also rallied. Ceat, Apollo Tyres, and MRF experienced share price increases. Analysts anticipate oil prices to remain stable around $90 per barrel.
Airlines, including InterGlobe Aviation and Spicejet, benefited from the drop in crude oil prices, which directly impacts aviation turbine fuel (ATF) costs. A potential US-Iran peace deal and a stronger rupee could further support the travel sector.
Paint companies, which use crude derivatives for a significant portion of their raw materials, saw more modest gains. Asian Paints, Berger Paints India, and Kansai Nerolac edged up. Many paint firms had already increased prices to offset earlier oil spikes, helping to stabilize margins.
Upstream oil producers such as Oil India, Hindustan Oil Exploration, and ONGC faced pressure as falling crude prices directly affect their revenue realizations. Investors are advised to avoid these stocks if oil prices continue to trend lower.