Crude oil rally hits Dalal Street: IndiGo, HPCL, BPCL fall up to 5%

A rise in crude oil prices after fresh US-Iran tensions dragged aviation and oil marketing stocks lower on Dalal Street. InterGlobe Aviation, the parent company of IndiGo, dropped more than 3%, while SpiceJet also traded lower.

In Short

• Crude oil prices surged due to US-Iran tensions, hitting Dalal Street hard
• Oil marketing and aviation stocks fell sharply amid rising energy costs
• Brent crude crossed $76 following US airstrikes and renewed sanctions

A sharp rise in crude oil prices following fresh tensions between the United States and Iran weighed heavily on Dalal Street on Wednesday, with aviation, oil marketing and auto stocks witnessing sharp selling as investors turned cautious over the impact of higher energy prices.

The weakness extended Tuesday's late-session selloff, when the Sensex erased nearly 600 points from its intraday high as rising crude oil prices and geopolitical uncertainty triggered profit booking.

On Wednesday, shares of oil-sensitive companies remained under pressure. Hindustan Petroleum Corporation Ltd (HPCL) fell over 4%, Bharat Petroleum Corporation Ltd (BPCL) declined nearly 5%, while Indian Oil Corporation (IOC) slipped around 3.5%.

Among aviation stocks, InterGlobe Aviation, the parent company of IndiGo, dropped more than 3%, while SpiceJet also traded lower.

Sectorally, the Nifty Oil & Gas index fell around 2%, while the Nifty Auto and Nifty FMCG indices were also in the red as investors assessed the impact of rising crude prices on corporate earnings.

WHY ARE THESE STOCKS FALLING?

The selloff comes after Brent crude climbed above $76 a barrel, extending gains after the US launched airstrikes on Iran and reinstated sanctions on Iranian crude sales.

The escalation followed attacks on commercial vessels passing through the Strait of Hormuz, a crucial shipping route that carries nearly one-fifth of the world's oil supplies.

The renewed tensions have revived fears that crude supplies from the Middle East could once again be disrupted, pushing global oil prices sharply higher.

WHY DOES HIGHER CRUDE HURT THESE COMPANIES?

Higher crude prices increase costs for several sectors of the economy.

Oil marketing companies buy crude oil as their primary raw material. When crude prices rise sharply, their input costs increase, but they are often unable to immediately pass on the entire increase to consumers, putting pressure on profit margins.

Airlines are also among the biggest losers because aviation turbine fuel (ATF), which is derived from crude oil, is one of their largest operating expenses. A sustained increase in oil prices can significantly raise operating costs and weigh on profitability.

Higher crude prices also raise concerns about inflation, India's import bill and corporate margins, making investors cautious towards sectors that are directly exposed to energy costs.

MARKET BACK IN UNCERTAIN TERRITORY

Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the latest geopolitical flare-up has once again clouded the market outlook.

"With the renewed US-Iran tensions and the consequent spike in Brent crude to $76, the market is again back to uncertain territory. How long this would last and what would be its consequences are now in the realm of uncertainty. The market was slowly gaining strength on positive FII activity and improving macro fundamentals. The renewed US-Iran tensions have put a temporary question mark on this positive development. Therefore, investors have to wait and watch the developments," he said.

However, he believes the broader trend for Indian equities remains relatively favourable if the conflict does not worsen.

"The weakening of the chip trade globally and FIIs turning buyers in India are clear positives for the Indian market. During the last three days FIIs have been consistent buyers, purchasing equities worth Rs 1,991 crore. Even though the amount is small, this marks a significant trend in FII activity," Vijayakumar said.

He added that uncertainty surrounding global semiconductor stocks and concentration risks in markets such as South Korea and Taiwan are making India a relatively attractive destination for foreign investors.

"If the US-Iran tensions don't escalate further, FII activity will continue to favour India. This can change if the tensions escalate and crude again flares up, impacting India's macroeconomic fundamentals," he said.

Markets are likely to remain sensitive to developments in the Middle East over the coming days.

Any further escalation could keep crude oil prices elevated and extend pressure on sectors such as aviation, oil marketing, paints, tyres and logistics, all of which are heavily dependent on crude-linked inputs.

At the same time, continued foreign investor inflows and stable domestic macroeconomic indicators could help cushion the downside if geopolitical tensions ease.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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