The 31 per cent fall in global crude oil prices since July 11 has already contributed to the recent rise in domestic equity market, and fund managers expect the recovery to continue if oil prices slip below $100 a barrel.
“If crude oil falls below $100 or stays below that, Sensex could rally by 1000-1500 points,” said a fund manager at a private fund house.
Mutual fund industry participants said that in the short-term, share market is inversely proportional to crude oil prices.
Crude oil prices touched a five-month low of $101.74 a barrel on Wednesday, down 31 per cent from a record high of $147.27 a barrel hit on July 11.
During the same period, the Bombay Stock Exchange’s 30-share Sensex gained 11 per cent, compared with a nearly 17 per cent drop over previous two months when oil prices had surged 23 per cent.
Fall in share market in March-April was due to rising commodity prices, which are now easing and the macro risk receding in India, fund managers said.
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Firm US market and the greenback’s recovery against the euro have also played a part in recovery of local bourses since July, they said.
Survival of Congress-led United Progressive Alliance government at the Centre and Nuclear Suppliers Group’s waiver for India-US nuclear deal, have together led to a rise by over 1,000 points in Sensex and fund managers feel that fall in crude oil prices is still to be factored in fully by the market.
“If crude oil falls further to $100 a barrel, market would move up by a minimum of 500-1000 points. Fall in crude oil is one of the factors for the market to rally, but there are many other variables too,” said a fund manager at a bank-sponsored fund house.
High crude oil prices had been weighing down domestic market because it helped inflation climb to a multi-year high of 12.63 per cent in the week ended August 9 and forced the government to hike automobile fuel prices further, thereby pushing up retail prices of most products.
Fund managers feel the full impact of fall in crude oil prices is still to be felt by the market and it may witness a knee-jerk rise when oil prices slip below $100 a barrel.
Jayesh Shroff, equity fund manager, SBI Mutual Fund, said that although it is beneficial if crude oil prices fall to $100 a barrel, the impact will be more if it sustains below the three-figure mark.
Fund managers said crude oil has had a direct or indirect impact on any sector or industry and higher oil prices had severely eroded profit margins of many companies over last one year.