Indian Oil, IndiGo, Asian Paints: Oil-sensitive stocks fall as crude prices jump due to Trump's peace deal rejection

Oil-sensitive stocks like Indian Oil, Hindustan Petroleum, Asian Paints, Bharat Petroleum, Apollo Tyres, among several others, declined during the trading session on Monday, September 28, as investors focused on the increase in global crude prices after the US President rejected the latest peace deal proposal for the West Asia conflict.

The oil sectoral benchmark, Nifty Oil & Gas, declined 1.1% to touch an early market low of 10,739 points on Monday’s market, in comparison to 10,862.15 points at the previous equity market close, according to NSE data.

Due to the rising crude oil prices in the market, oil downstream companies like OMC stocks, aviation stocks, tyre stocks, and paint stocks, among others, witnessed selling pressure from investors.

Equity market investors reacted to the rebounding crude oil prices in the global market, with the benchmark Brent crude oil (November contract) surging to $107 per barrel (bbl), according to data collected from Oilprice.com.

With the elevated global oil prices, the crude oil Indian basket prices also remained high at $120.86/bbl on September 28, adding to the subdued sentiment for companies which use crude oil or crude-linked derivatives as raw materials or inputs.

Latest reports over the weekend showed that US President Donald Trump rejected Iran’s peace deal proposal, which the country announced at the UN General Assembly in New York, looking to reopen the Strait of Hormuz and end the conflict in West Asia.

Oil-sensitive stocks in focus today

Trump on peace deal

US President Donald Trump turned down the latest Iran peace proposal, which was set to reopen the Strait of Hormuz, citing that the deal was not “acceptable” and that the West Asian country was allegedly looking to open the key trading route within seven days as they are losing the conflict.

"They want to make a deal to open the Hormuz Strait immediately because they're losing ​so badly," Trump told media at the White House on Sunday.

However, in a telephonic interview with Axios, Trump said that he expects the US negotiators to engage in more talks with Iran this ​week.

Iran’s Foreign Minister Abbas Araghchi, acknowledging Trump's rejection of the peace proposal, said that the country would wait for a “definitive” official US response to the deal.

How do oil prices impact stocks?

The volatility in crude oil prices in the global market impacts several companies across sectors, including oil marketing companies, aviation companies, tyre manufacturers, and paint companies, which use the energy source as a raw material in their production process.

Higher crude oil prices have a direct impact on the company's margins and profitability in a particular period.

In the case of oil marketing companies (OMCs), the firms buy crude oil in order to then refine it further into petrol, diesel, and other petroleum products. Hence, any changes in global prices increase or decrease the raw material costs.

For Aviation stocks, the largest expense for an airline is tied up in aviation turbine fuel (ATF) or jet fuel, and any negative changes to global energy prices have a ripple effect, in turn increasing the fuel cost.

Companies in sectors like paints and tyres use crude-oil derivatives as raw materials. So, if the raw material cost rises in the market, then it always has a negative impact on the company's margins.