Crude oil prices rose on Monday as uncertainty over the reopening of the Strait of Hormuz increased concerns about global oil supplies. The rise in crude prices could put pressure on Indian equities, particularly sectors and companies that have high fuel or raw material costs.
Brent crude futures rose 91 cents, or 1.09 per cent, to USD 84.46 a barrel, while US West Texas Intermediate (WTI) crude gained 61 cents, or 0.78 per cent, to USD 78.79 a barrel.
Both benchmarks had fallen more than 7 per cent last week on hopes that an agreement could lead to the reopening of the Strait of Hormuz.
Why crude oil matters for Indian investors
India imports a large part of its crude oil requirement. Therefore, a sustained rise in international crude prices can increase the country’s import bill and put pressure on the trade balance and the rupee.
Higher crude prices can also increase input and transportation costs for companies. This can affect profit margins if companies are unable to pass on the higher costs to customers.
For investors, the impact is likely to vary across sectors. Oil marketing companies, airlines, paints, chemicals, tyres and other industries with high fuel or crude-linked costs could remain sensitive to movements in crude prices.
Airlines, paints and tyres could face pressure
Higher crude prices are generally negative for airlines because fuel is one of their major operating expenses. A sustained increase in aviation turbine fuel prices could put pressure on margins.
Paint companies can also be affected as several raw materials are linked to crude oil and its derivatives. Higher input costs can weigh on margins if companies cannot fully pass on the increase.
Tyre manufacturers could also see higher costs for crude-linked raw materials such as synthetic rubber and carbon black.
On the other hand, companies that benefit from lower crude prices could see some relief if oil prices remain subdued.
Oil producers may benefit
Upstream oil and gas companies can benefit from higher crude prices, particularly when higher realisations translate into stronger operating performance.
However, the overall impact depends on government policies, taxes, crude realisations and other company-specific factors.
For oil marketing companies, the impact can be more complicated because retail fuel prices may not move immediately in line with international crude prices.
Oil prices rise as Hormuz reopening remains uncertain
Oil prices moved higher after Iran indicated that a deal with Oman on defining new shipping lanes was in its final stages, but said the waterway would reopen only after the US meets additional conditions.
Iranian Foreign Minister Abbas Araghchi said Tehran was not holding direct negotiations with Washington and was communicating through intermediaries. He also said efforts were underway to create conditions for negotiations.
The uncertainty has raised concerns over the timing of the reopening of the Strait of Hormuz. The waterway carried around a fifth of global oil supplies before the conflict.
Supply concerns also increased after a Saudi oil facility was attacked over the weekend. The Iran-aligned Houthis said they had targeted Saudi Aramco’s Jazan refinery.
The UAE’s ADNOC has separately said that 15 of its vessels had been attacked while transiting the Strait of Hormuz since the beginning of the conflict.
Trump takes ‘low-key’ approach towards Iran
US President Donald Trump said on Sunday that the US was taking a “low-key” approach towards Iran and was not currently looking to launch another military offensive, according to Axios.
Trump said the US was “semi-negotiating” with Iran while monitoring the country’s economic situation.
His comments came amid stalled efforts involving Iran, Oman and the US to reopen the Strait of Hormuz. Tehran has sought conditions including the lifting of the US naval blockade and withdrawal of American forces stationed near Iran.
Meanwhile, the US Defence Department has asked American defence contractors to increase weapons production and accelerate deliveries amid concerns over shortages of critical munitions linked to the conflict.
The developments around the Strait of Hormuz remain a key factor for global oil prices and could influence Indian equities, given India’s sensitivity to crude prices.
Anil Singhvi sees subdued start for market
Zee Business Managing Editor Anil Singhvi said Indian markets were likely to see a subdued opening, with mixed signals from global and domestic factors.
Singhvi said expectations of a deal over the weekend did not materialise, while crude oil prices also moved higher. Both factors are mildly negative for the market.
At the same time, he said there was no major negative surprise from recent corporate earnings. Results from companies such as Titan Company and Hitachi Energy were positive, which could provide stock-specific support.
“The signals are mixed. Neither is there a case for a major rally nor for a major decline,” Singhvi said.
He said the market could remain in a wait-and-watch mode until there is more clarity on the war situation or crude oil prices decline significantly.
Nifty, Bank Nifty levels to watch
Singhvi said the Nifty has been receiving support in the 24,425-24,525 range, which will remain an important support zone. On the upside, the 24,675-24,775 range could act as a resistance area.
He advised traders to watch the index’s movement around these levels before taking positions. “If the market reaches the upper end of the range first, some profit booking can be considered, followed by buying at lower levels,” Singhvi said.
He added that a decline towards the support zone could also provide an opportunity to buy. For Bank Nifty, Singhvi identified 57,450-57,600 as the immediate support range. On the upside, 57,900-58,075 could act as a resistance zone.
Stock-specific action likely to remain in focus
Singhvi said investors should focus on stock-specific and sector-specific moves rather than taking broad market positions. He said mid-cap and small-cap stocks have been performing well and there is no major concern in these segments.
“Wherever results are good, stocks are also seeing good action,” Singhvi said. He added that investors should focus on companies reporting strong quarterly results and look for opportunities at the stock level.
Singhvi expects a range-bound market in the near term, with crude oil prices, developments around the Strait of Hormuz, foreign fund flows and corporate earnings likely to determine the direction.
