[Music]
hey guys welcome to another episode with
me shashank and in today's episode we're
gonna talk about a topic that impacts
everyone's lives and i'm not only
talking about myself it even impacts the
business tycoons or the billionaire
tycoons and it also affects the normal
workers in our economy now what is this
impact today we're going to talk about
the impact of crude oil prices on the
indian stock market
[Music]
now first let's understand the
importance of petroleum or crude oil now
petroleum or oil is probably the most
important commodity in the world today
the entire economies of big countries
like russia saudi arabia and small
countries like qatar kuwait and iraq are
only based on these oil reserves now
petroleum is not only used to do
transportation like petrol diesel and
jet fuel but they're also used in a lot
of raw materials to make a very large
variety of chemical products like
pharmaceuticals solvents fertilizers
pesticides synthetic fragrances plastics
paints artificial rubber and a lot more
so it's not just limited to
transportation now
another fun fact is that oil accounts
for a major part of the world's energy
generation ranging from 32 percent in
european union and asia to 53 in the
middle east now the production
distribution refining and retailing of
petroleum products represents the
world's largest industry in terms of
dollar value no wonder oil is actually
called black gold now wait for a bit the
gdp of both oil producers and consumers
is now heavily tied to oil prices any
fluctuation will affect the gdp now
obviously given the widespread usage of
petroleum oil price volatility also
affects the overall inflation rate in
all oil consuming nations and we're
going to look at all of that very soon
now let's understand the impact of crude
oil on the stock market and economy now
the direct impact of crude oil prices is
on retail petrol and diesel prices now
india is an oil importing nation with 80
percent of domestic requirements being
imported it also also forms around 20
percent of our import bill and has a
direct impact on our dollar reserves
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now prices of petrol and diesel in india
are pegged to a 15 day rolling average
of international prices for these
products now any rise in crude oil
prices directly impacts the
international prices for petrol and
diesel which are obviously reflected in
the domestic prices of these products
given the importance of power and
logistics in any working economy any
rise in crude oil prices directly
translates to a problem which increases
the cost of power cost fuel costs and
obviously your transportation cost now a
rise in crude oil prices is detrimental
to earnings potential and margins
profile for a lot of companies that have
any costs that are significant part with
respect to raw materials right now
another problem is recently if you have
seen a lot of companies coming out of
the results their margins have slightly
gone down because the raw material went
up the transportation cost has gone up
why because the oil prices have also
gone up quite significantly now the ones
taking a direct hit are the commodity
based industries with limited pricing
power like cement steel logistics they
have limited pricing power so they can't
experiment too much on it and the ones
that are not able to pass this extra oil
price increase in the form of a selling
price have to face the problem of margin
degradation right now if you can pass
this price on if fuel price goes up by
10 percent i pass it on to the customer
i'm safe but if i can't do that then my
margin will start going down industries
that use petroleum products as raw
materials are tires lubricants footwear
paints chemicals plastic products right
and these guys face a massive rise in
raw material cost why because they need
this to make all these products now the
companies who are unable to pass this
increase in raw material cost in the
form of higher selling prices will again
see a margin decline as well so both
problems happen now the biggest impact
of an increase in crude oil price is the
rise of inflation and we have seen that
it happens in a growing economy now
given the widespread usage of petrol and
diesel for power transportation fuel
petrol and diesel become a vital part of
consumption baskets in india and across
the world also for every 10 dollar
increase in oil prices relates to an
inflation rise of 0.1 to 0.3 percent in
india okay so let that set in now the
impact becomes more heightened when oil
prices are already at higher levels and
it keeps going up and up right the
increase in inflation is generally bad
for the economy because because why it
directly impacts the earning power of
the economy and leads to a rise in all
prices of essential goods now this leads
to lower savings rate one problem big
problem lower savings rate second if you
have lower saving rates it'll
automatically impact your disposable
income so i don't have extra income in
my pocket i'm spending so much on all
this and my overall spending goes up
investment sentiment goes down in the
country and then you'll see a big
problem coming on if the crude oil
prices go up looking at the direct
impact on the stock market any rise in
the oil prices will have a negative
impact different degrees for margins of
all companies and we've seen that
happening especially for power and
logistic heavy companies now the ones
that are most safe or ones that are more
shielded from oil prices they don't care
if all prices are going up or down can
you guess which industry is that they
are actually the tech companies right
the technology companies because they're
not dealing in physical products and
they have very limited logistics cost so
they are completely safe the biggest
impact from oil prices is on the
industries that have high logistics and
power cost okay so we saw cement steel
building construction airlines all of
these have a massive impact now even the
auto industry right automobile industry
gets affected because if this fuel price
goes up then the demand for vehicles may
go down because people like you know why
should i buy a thing right now petrol is
you know going up so much diesel is
going up so much let's not buy it right
now and this will obviously increase
their production cost also that means
again they'll have an input cost rise
and again that margins will go down it's
a very bad issue another question here
is will this affect oil prices right or
oil companies a rise in crude oil prices
does not have a detrimental impact on
oil companies as the demand for oil is
still there and the oil products remain
constant so the oil companies don't have
any problems in fact the oil companies
tend to perform really well when the oil
price goes up why because demand is
still there and now you're selling at a
higher rate now even power sector
companies do very well when high oil
prices go up right so whenever you see
oil prices going up automatically
understand oil companies and power
companies are gonna do well so
now we can basically see that crude oil
prices
price rises are generally detrimental to
the indian stock market with the biggest
impact seen in cyclical commodity
companies and the least impact in the
tech company so we've understood that
and any fall in crude oil prices also
follows the same path in rivers where
the fall will directly cause a drop in
inflation a drop in fuel power logistics
cost drop in cost of production drop in
current account deficit and import bill
appreciation of rupee rupee becomes
stronger and a rise in the stock market
so we will see a good impact if the oil
price goes down now wait you've
understood all this but let me tell you
one thing crude oil prices aren't the
only factor if you think crude oil
prices will go up and stock market will
go down that doesn't happen because we
can't make any direct correlation that
oil prices will be the sole factor to
determine whether the stock market goes
up or down because the stock market
moves on a variety of forces right and
also it depends on the economy now even
though in the last 12 months we have
seen the oil prices going up
consistently it has not had a negative
impact on the stock market that much
right now the indian stock market was
still on a rise in the last 12 months
and the cyclical companies including
cement steel and others who are expected
to have been negatively impacted from
oil prices have also done well in this
period so we need to remember that
although a rise in crude oil prices has
a negative impact on the economy and the
stock market the stock market may react
completely different or it may react
with a small lag effect because whatever
this thing happens right might come in
the next few quarters and that will
create an issue later on so we'll have
to look and check what is happening
finally guys now we've come to the end
of this video and i hope you've got some
beautiful understanding on what crude
oil is how the crude oil prices actually
affect the indian stock market which
companies get affected by crude oil and
which companies don't get affected by
crude oil now tell me one thing if you
like this video and if you have any
comments put in the comment below and
i'll keep putting out more interesting
videos and if you have any video
recommendations put in the comment below
as well i'm happy to cover all of it for
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everything else again thank you for
watching this video this is me shashank
udapa signing off take care see you guys
bye
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