OMCs, aviation stocks slip up to 4% as oil prices surge on US-Iran tensions

Oil-linked stocks across segments, such as oil marketing companies, paints, tyres and aviation firms, came under pressure on Wednesday after oil prices surged over 5 per cent after Iran fired rockets at an Iraqi airbase that hosts US military forces, stoking fears of sharp escalations in a developing conflict. Losses were, however, partially pared later as Iran said it would not escalate further if US doesn't retaliate. 

Iran's missile attacks on the Ain Al-Asad air base and another in Erbil, Iraq, early Wednesday came hours after the funeral of an Iranian commander whose killing in a US drone strike has raised fears of a wider war in the Middle East. Brent Crude Futures was hovering around $69 per barrel-mark, up 1.35 per cent, around 9:50 am, while US West Texas Intermediate (WTI) was at $63.48 per barrel, up 1.2 per cent. 

Among OMCs, Hindustan Petroleum Corporation (HPCL) slipped 3.1 per cent to Rs 234.5 in the early trade, but bounced back to trade 0.25 per cent lower by 9:52 am. On Monday, rating agency Fitch had said that the company's refining margins could fall by one-third during the current fiscal due to volatility in crude prices leading to inventory losses.

Fitch affirmed HPCL's rating 'BBB-' with stable outlook, in line with the credit profile of its largest shareholder Oil and Natural Gas Corp Ltd (ONGC).

"The agency assesses HPCL's standalone credit profile at 'bb' to reflect its position as one of India's biggest oil-marketing companies, average-but-improving complexity of its refining assets and moderate financial profile," Fitch said in a statement. READ HERE

That apart, Indian Oil Corporation and Oil and Natural Gas Corp (ONGC) slipped up to 0.9 per cent. On the other hand, Reliance Industries recovered all of its morning losses and was trading 0.03 per cent higher at Rs 1,525.50. The stock touched an intra-day low of Rs 1,508.

Meanwhile, Bharat Petroleum Corporation (BPCL) was trading 1.29 per cent lower at Rs 455, having touched an intra-day low of 450.1 per share in the opening deals. Apart from oil, shares of BPCL were trading lower after media reports suggested that IOC and ONGC would not bid for BPCL. 

"The Cabinet has cleared it, questions have been answered in Parliament. It’s a move towards privatisation. There is no question of public sector companies to be allowed,” a senior government official was quoted as saying. Earlier, it was reported that privatisation of BPCL may not conclude in FY20 as potential buyers wanted to do "due diligence" before bidding. READ HERE

Among paint stocks, Asian Paints and Berger Paints, hit an intra-day low of Rs 1,695.3 and Rs 484.15, (down 1.6 and 2 per cent) respectively. In the aviation space, InterGlobe Aviation (IndiGo) was down over 3 per cent, while, SpiceJet slipped up to 4.4 per cent. 

Banking counters, too, were trading lower in the morning deals. Canara Bank declined up to 3.6 per cent to Rs 200.45 on the National Stock Exchange (NSE), but pared later to trade 2.11 per cent lower. Bank of India, Indian Overseasn Bank, Punjab National Bank, UCO Bank, and State Bank of India were doen between 1 and 2 per cent.

In comparison, the benchmark S&P BSE Sensex was down 0.33 per cent at 40,733.59 level, while the NSE was at 11,995.600-mark, down 0.48 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. That's why the stocks have been reacting negatively. Similarly, aviation companies uses jet fuel which is processed from crude oil.