Relationship between Crude Oil and Sensex Prices
Crude Oil is one of the most important commodities for any economy, it’s fluctuating prices play a vital role in enhancing and depriving national stock markets. In context to the Indian Market, studies have shown a substantial rise in the Sensex at times when crude oil prices have fallen. Though currently, Sensex has fallen, due to a steady rise in crude oil prices, since the beginning of the year. Now the reason for the same is, as lower the prices of crude oil will fall, there will be the low cost of production which leads to higher profits and ultimately raises share prices. And vice versa, it affects terribly when prices go high.
Thus, the traders who wish to invest in crude oil or stock market should not only opt for share market tips but also for crude oil tips.
Now let’s understand the impact.
Impact of International Crude oil on Sensex
Now apart from Sensex, there are few more crucial impact on Indian economy which further affects Sensex, let’s see them more precisely:
1. Depreciation/Appreciation of Rupee: The value of rupee directly affects Sensex, as most of the import and export businesses depend on it. Now rise in crude oil prices leads to an increase in CAD, which is a current account deficit which ultimately affects rupee depreciation. In case, the crude oil prices are low, they will reduce CAD, which will lead to an appreciation of the rupee. Once the rupee value is appreciated it will facilitate many businesses that are concerned with the import and export of goods and services.
2. Cost of Production: Crude oil affects the cost of production significantly, it is because crude oil is one of the most important sources of energy in India, and major production houses directly take their supply of energy from it. In this case, if the price of crude oil is increased then it will affect the industries adversely. The crude oil tips are beneficial for traders, investors, speculators, and manufacturers. Also, these companies performance will get hampered resulting in the falling of the Bombay stock market or Sensex. Consequently, along with crude oil tips, share market tips help the traders to have a short-term and long-term vision for their portfolio.
3. Inflation: Crude oil, being the most vital component of all the industries, plays a great role in inflation also. As almost all the industries have usage of crude in this way or the other. It’s high prices and lower availability will affect the overall economy. Even higher inflation could result in depression as well. And it is a well-known fact that at times of depression, stock market crashes unexpectedly.
4. Transportation Cost: Now, transportation cost is quite important, especially for large scale business houses. These types of houses manufacture their goods in plants situated quite far from the actual consumer areas. Hence if the prices of crude oil will increase, it will affect the transportation
price as well, and also the overall production cost will affect. In that case, the demand for the product will lower down and so the stock prices as well.
By analyzing these factors one could easily make out that, crude oil prices are inversely proportioned to Sensex. With recent studies and evaluations, an economist at different reputed organizations has claimed that in the coming years, there are possibilities of higher inflation and a falling rate of Sensex. It is because world resources are constantly getting exhausted and it is complemented by natural destructions along with political dilemmas. Though India does not persist any natural sources of crude oil, it is going to become difficult for major manufacturing sectors along with high scale industries to import crude oil at affordable rates. So it would be more vital for investors to wisely invest in stocks and earn potential returns.