India’s macroeconomic indicators and corporate earnings may come under pressure amid the deepening conflict in Ukraine and its effect on international energy prices. India imports nearly 85% of its crude oil requirements and costlier crude will widen the current account deficit. The ET Intelligence group reports:
MACRO Impact
Bigger oil bill – Apr-Jan crude imports already over $100 billion against $62.2 billion in FY21
Growth, CAD and inflation impact
For Every $10/bbl rise in crude price…
Current account deficit rises by 30 basis points
Consumer inflation spikes 40 basis points
GDP falls by 20 basis points
EARNINGS Impact
1. Oil marketing companies’ earnings to be hit
OMCs have not been able to pass on the increase because of elections
The marketing margins have turned negative to Rs 2.8 and Rs 1.2 per litre for petrol and diesel
In the previous quarter, they had gained on average Rs 4 and Rs 5 per litre respectively.
The retail fuel accounts for nearly two-third of the total operating profit of OMCs.
2. Supply disruption and higher input costs for Auto
Ukraine among major producers of neon gas used in chip manufacturing.
Nearly 30% of palladium used in catalytic convertors sourced from Russia.
The precious metals account for nearly 2-2.5% of their total raw material cost
Prices of precious metals have increased by 10-30% following the current flare in Ukraine.
Crude & crude derivatives used in tyre manufacturing and account for around 18-20% of raw material cost of tyre makers
The cumulative increase in raw material prices, if passed on to consumers, may lead to a 2.3% increase in vehicle prices
The gross margin of the automakers have dropped by 8-10% in the past six quarters
It is likely to remain under pressure in the near term.
3. Steel the major gainer
Export opportunities for Indian steel makers may increase
Russia and Ukraine account for nearly 10% of the total global steel export
The sanction on Russia may improve export opportunities for Indian steel makers.
The Euro zone imports nearly 30 million tonnes of steel, of which 20% originates from Russia and about 10% from Indian steel makers.
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