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How Can Surging Brent Crude Price Affect Indian Economy? 03.05.2022

In this Weekly Review, we will analyze the impact of growing oil prices in India on the country’s inflation, stock market, and GDP.

Contents

Interact with the dashed blue word and green spot on images to get additional details and explanations.

Can India’s Oil Imports Hurt Indian Stock Market and GDP?

Rising oil prices negatively impact the Indian economy. As India is a net oil importer, higher oil prices will result in the country’s higher oil import costs. India’s balance of trade will likely shrink because of that, impacting the GDP. According to PPAC, India imported 212.2 million tons of crude oil in 2021-2022. That’s a 196.5 million tons increase from the $101.4 billion in 2019-2020. As the Russia-Ukraine conflict sparked the oil price growth, the latter, in turn, pushed the country’s inflation. A senior International Monetary Fund (IMF) official said that in order to ensure economic stability and improve growth potential, monetary tightening and measures to address structural weaknesses are required.

Brent Crude Oil Chart - Olymp Trade - Expert Review – 03.05.2022
Fig. 1. Brent Crude Oil Chart

Impact on the Nifty 50

The Nifty 50 may suffer from the rising oil prices. 

Rising oil prices may negatively impact the Indian GDP and the stock market due to higher overall production costs, growing inflation, and weaker consumer spending. Corporate revenues and profitability will likely drop as well, creating downward pressure on the stock market. We expect the Nifty 50 to bring weak performance in the coming weeks. On the way downwards, the levels of 16,500-16,850 will be key, and in case of a deeper drop, the Nifty 50 can get down to the range of 15,650-16,000.

Nifty 50 Index Graph - Olymp Trade - Expert Review - 03.05.2022
Fig. 2. Nifty 50 Index: India

How Can Indian Oil Companies Benefit from the Rising Oil Prices?

Fuel costs have notably increased all across India.

The main factor causing the surge in consumer product prices is crude oil. One of the companies that may most gain from this process is ONGC, or Oil and Natural Gas Corporation. Being the largest government-owned oil corporation in India that does business in oil and gas exploration and production, this company produces nearly 70% of India's crude oil and 84% of the country’s natural gas. Currently, ONGC has stakes in three projects in Russia, 20% in Sakhalin, 26% in Vankorneft, and 100% in Imperial.

Recently, ONGC said it wasn’t expecting its operations in any of its Russian projects to be impacted and that the devaluation of the Russian ruble devaluation would likely increase its profit. Also, the company mentioned that it saw no challenge in selling its share of crude from Russian oil fields.

ONGC is in an uptrend and will likely keep going up in the future. Currently, it trades near an important support level of 160.00 and may reach 180.00 in the coming weeks.

Fig. 3. ONGC, India

Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.