Export-facing sectors and those that rely on crude oil and its derivatives and transport raw materials from the Gulf by sea are expected to be adversely affected by geopolitical tensions and the disruption of trade and commerce through the critical Strait of Hormuz.
Institutions Oil and gas
Oil and gas stocks are particularly vulnerable to price swings as any rise in these two commodities raises costs for oil marketing companies such as Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) which produce and sell crude oil. On the other hand, upstream companies like ONGC and Oil India benefit from the rise in crude oil prices as they sell higher crude oil prices which means better earnings and improved profitability.
Brent crude futures rose more than 8% to $78.8 on Monday.
“Although downstream OMCs are witnessing a correction due to the rise in crude oil, it is also likely to cool down in the same manner once the conflict ends in the near term,” said Darmesh Kant, head of research at Cholamandalam Securities. He said that while crude oil prices are high, the war is expected to be contained in the next few weeks and is not a destabilizing factor for India at the moment.
Shares of HPCL and BPCL fell 3.3% and 2.8% respectively on Monday. Oil India and ONGC closed higher. The ongoing volatility is expected to reflect in the oil and gas sector as the Strait of Hormuz is the route for around 20-25% of the world’s oil trade, said Swarindu Bhushan, associate head of institutional research at Prabhodas Lilladar.
“The war is not expected to last long, but as long as the crisis continues, oil prices are expected to remain volatile,” Bhushan said. “In this context, top players like ONGC and Oil India can benefit from higher prices.”
Tourism and Aviation
Sectors dependent on crude oil, such as aviation, could also remain under pressure as long as geopolitical tensions continue, analysts said.
Airlines such as InterGlobe Aviation, which operates IndiGo Airlines, and SpaceJet fell around 6% each while airport operator GMR fell 4.1%. The Nifty Tourism Index fell 3.3%.
“Travel and tourism have been hit and are expected to witness a structural change since Dubai, which was considered the safest place to do business, has come under Iran’s retaliatory attacks,” Kant said. He said aviation as a close-knit industry could be adversely affected by flight cancellations in addition to higher crude oil prices.
Special chemicals
Chemical specialty stocks including Gujarat Fluorochemical fell 4.8% while Godrej Industries and UPL declined 3.1% and 2.3% respectively. Pidilite Industries and SRF each fell about 1%.
“Specialty chemical companies could also be affected because their inputs are crude derivatives,” Bhushan said.
Kant said specialty chemicals could face hurdles as they import raw materials in bulk through the Strait of Hormuz, and the current scenario is expected to reduce profits. “India has a significant export share of rice trade with Iran which will be affected; other export-oriented sectors such as shrimp and animal feed could also come under pressure,” he said.
