In the last few months, the price of crude oil and coal has increased significantly. This will have a huge impact on some stocks and sectors. Brent crude was at $80 a barrel this week, while coal prices rose 15 percent since August. Analysts at BofA say this may have a limited impact on retail inflation, but may have a significant impact on companies and their stocks in certain sectors. Costs will increase for some companies, while some companies will benefit. The cost of UltraTech Cement, Shree Cement, Ambuja Cement and ACC Cement may increase but ONGC, Coal India, Tata Power and Hindalco may benefit.
These sectors and stocks may suffer
BofA says that interest rates are low now but select sectors will have to bear the burden of rising commodity prices. For example, 75 per cent of the electricity used by cement companies comes from coal. 40 percent of their transportation is done by road. Transportation by trucks means bearing the burden of increased diesel prices. A 5 per cent increase in the price of coal and diesel can bring down the margin by up to one per cent. The earnings of UltraTech, Ambuja Cement and ACC may decline by 3.5 to 4.5 per cent.
BofA believes that apart from cement companies, shares of paint companies may also be affected. The aviation sector can also be affected. NBFCs will be affected due to reduced sales of commercial vehicles.
These companies can benefit
Coal India can benefit from rising crude and coal prices. The company can get the benefit of not having a demand-supply balance of coal in the country. The company can also benefit from the increase in the price of imported coal. Coal India’s volume in the e-auction market is expected to grow by 20 per cent in the financial year 2022-23. Hindalco is included in the select shares of BofA. Tata Power is also expected to benefit as it will benefit from coal generated from its coal mines running in joint ventures in Indonesia .
(Kshitij Bhargava)
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