benefits to Indian Inc and India when crude oil crashed

Fall in crude prices because earlier US was importing 9-10 million barrels per day is no longer importing thanks to shale oil production and countering OPEC nations rising their production  to maintain market share and sanctions on Iraq being lifted, increasing the supply side of crude oil. Fear of global economy and china slowing down has also put downward pressure on crude prices. Following the supply glut has resulted in falling crude prices. Fall in crude oil has benefited India fundamentally and many sectors having crude as their input cost.

Fallen crude prices has provided support to India’s GDP by lowered inflation levels increasing the disposable income, hence increasing the demand for consumer products. Collapse in crude prices has reduced CAD, inflation levels in India. Subsidiary allocation will also be significantly gone down helping in narrowing the fiscal deficit.

Slump in crude price has benefited many sectors across the economy. Aviation sector has hugely benefited from this collapse. Their main operating expense jet fuel price reduced to Rs66/gallon from Rs108/gallon on year on year basis. Jet airways stock price touching 800rs levels from Rs250 and spice jet from Rs20 to Rs90. Paint companies also saw a run on declining crude prices. Asian paints, berger paints and kansai nerolac naming few. These companies profit margins rising by 2-5%yoy basis.  Another beneficiary of fallen crude is rubber industry. Benefiting JK tyre, MRF, Apollo tyres. This industry will benefit from rising demand I automobile sector with consumers willing to buy with lower cost of running vehicles. Additionally, tyre manufacturing uses crude based derivative products such as carbon black; synthetic rubber will surely affect the bottom line of all rubber-based industry. Sintex industry and  Nilkamal industry, a major player in plastic industry is also a beneficiary of crashed crude prices with plastic a crude based derivative will see bottom line boost as well top line helped by housing for all and increased consumer spending.

While sectors cheering the crash, on other hand state run company like oil and natural gas corporation of India(ONGC) profits and share price fell more than 50% drop in price as exploration cost goes and no incentive to explore new gas fields with low energy prices. Profits of ONGC falling from 7000crores to 3000crores and share prices from its high of Rs470 to Rs200 on Yoy basis. Larsen and turbo also faced with difficulties with order inflows slowing from Middle East countries, which constitute around 10% via heavy engineering projects from these countries.

Fallen crude prices are a boom for India’s growth fundamentally with CAD and trade deficit falling but it will hurt the exports to middle east and European countries with some countries India doing trade with might face recession in long term with these crude prices. Crashed crude prices are benefiting India with reduced bills of government and increased currency reserves from $270billion to $330billion. India an overall consumer driven economy will gain as people would go on spending and inflation controlled.