Oil-linked stocks trade weak as oil prices continue to surge; HPCL down 5%

Shares of oil & gas companies, tyre, paint, and aviation firms were under pressure on Monday as oil prices continued to surge after US President Donald Trump issued a threat to impose sanctions on Iraq amid escalating tensions with Iran in the Middle East.

At 09:40 am, Brent crude futures were trading 2.70 per cent higher at 70.45 USD/bbl while WTI Crude Oil (Nymex) were trading at 64.54 USD/bbl, up over 2 per cent. The gains extended Friday’s more-than-3 per cent surge after a US air strike in Iraq killed top Iranian commander Qassem Soleimani on Friday. The killing has heightened concerns of a widening Middle East conflict that could disrupt oil supplies from a region that accounts for nearly half of the world’s oil production.

The S&P BSE OIL & GAS sector was trading nearly 2 per cent lower at 14,538 levels, with all its constituents trading in the red. Hindustan Petroleum Corporation (HPCL) was the biggest loser on the index as the stock declined nearly 5 per cent to Rs 250 apiece. Other stocks such as Petronet LNG, Reliance Industries (RIL), IGL, IOC, and ONGC were down between 1-2 per cent.

In the paint segment, both Asian Paints and Berger Paints decline lost over 2 per cent each while Kansai Nerolac Paints was trading over 3 per cent down. Among tyre stocks, Apollo Tyres was down nearly 1.5 per cent while MRF slipped over 1.6 per cent to Rs 65,487. JK Tyre & Industries lost around 3.5 per cent and Balkrishna Industries was trading over 0.5 per cent lower.

In the aviation space, InterGlobe Aviation (IndiGo) was down over 2 per cent. However, SpiceJet was trading over half a per cent up at Rs 107. In comparison, the benchmark S&P BSE Sensex was trading at 41,007 levels, down 458 points or over 1 per cent.

Crude oil is one of the key raw materials in the manufacture of paints and tyres; hence spike in oil prices will lead to increase in cost of raw materials. Thatswhy the stocks have been reacting negatively. Similarly, aviation companies uses jet fuel which is processed from crude oil.

Currency experts fear the rupee could react in the coming sessions, which may trigger a heavy pull-out by foreign portfolio investors (FPIs), looking to avoid the impact of currency volatility on their returns.

“A volatile rupee would spook FPIs at a time when we desperately need foreign demand, especially in the bond markets. The rupee at 72.75 is likely to act as resistance for dollar-rupee in the medium term. At 71.20, there is a strong support on the downside,” said a Business Standard report quoting Abhishek Goenka, managing director at IFA Global, a foreign exchange advisory firm, as saying.