How Falling Crude Oil Prices Can Help Investors Become Rich

Brent crude oil prices have crashed 40 per cent since June, falling from around $110 per barrel to below $68 a barrel this week, which is also a five-year low. Since India imports nearly 80 per cent of its crude consumption and oil accounts for a third of the total import bill, lower prices have provided a big boost for the economy.

According to Nomura, every $10 per barrel fall in oil price can boost India's GDP growth by 10 basis points, lower consumer inflation by 20 basis points and improve current account and fiscal balance by 0.5 per cent and 0.1 per cent of GDP. Lower oil prices also support the rupee.

The collapse in crude oil prices has translated into lower petrol and diesel prices for Indian consumers. Falling oil prices also provide a big opportunity for investors as many companies are likely to make windfall gains. The following stocks get impacted because of the slump in crude oil prices:

1) Oil marketing companies - BPCL, HPCL, and IOC - will face pressure in the near term because of inventory losses, but in the long run lower oil prices will reduce subsidy concerns and benefit these stocks.

2) Auto companies (Maruti Suzuki, Hero MotoCorp, etc.) will benefit as the ownership cost of vehicles will come down because of falling oil prices. According to Nomura, a further Rs 4 per litre fall in petrol prices will lead to annual savings (assuming running of 30 km/day and mileage of 12 km/litre) of around Rs 4,000 for car owners.

3) Tyre companies (Apollo Tyres, MRF, Ceat and JK Tyres) will benefit from higher margins as 30-40 per cent of their raw material costs are linked to crude oil prices.

4) Industrials: Demand for diesel gensets could rise in near term, helping Cummins. Lower diesel prices will benefit Concor as it may lead to a cutback in railway freight rates.

5) Consumer: The biggest gainer will be Asian Paints as a huge chunk of raw materials are linked to crude derivatives, Nomura says. Godrej Consumers, HUL and Emami will benefit from lower prices of packaging materials, which are direct derivatives of crude, the brokerage added.

6) Power utilities such as Tata Power, Adani Enterprise and JSW Steel will benefit if benchmark thermal coal prices fall because of a drop in diesel prices. Reduction in price of diesel is also a positive for mining companies (Coal India). Nomura says fall in fuel oil will benefit private independent power producers where tariffs are not a pass-through (e.g. Adani Enterprises, Reliance Power).

7) Fall in LNG prices will benefit gas-powered power plant operators such as GVK Power, Lanco Infra, GMR Infra, Tata Power, Reliance Power and NTPC.

8) Airline stocks will also benefit as carriers spend nearly 40 per cent of their operating costs for aviation turbine fuel (ATF).

9) Among midcaps, JBF Industries, Bata India, Supreme Industries, V-Guard Industries, Havells India, Nilkamal Industries, Relaxo Footwear, Whirlpool of India will likely be big beneficiaries of the fall in crude prices, says domestic brokerage Nirmal Bang.

10) Finally, upstream companies like Cairn India, which is a pure crude oil play, will be badly hit because of the slump in oil prices. ONGC, Oil India and Reliance Industries will be also negatively impacted too. Nomura says falling crude prices may lead to investment curbs in the Middle East and impact companies such as L&T and Voltas, which have considerable exposure in the region.