The oil acts as one of the pillars of the global as well as the domestic economy. Everything from making machinery move to plastics products can be traced to oil or some of its byproduct. Oil makes its impact felt on almost everyone’s life. The effect of oil does not move in one direction. From our previous articles, you can get other similar information regarding dollar and Nifty relationship, RBI and Nifty relationship etc. Today’s article covers mainly Crude Oil Price Impact on Stock Market Trends.
First of all, we are going to establish the relationship between the dollar and crude oil price. As we know dollar and rupee are inversely related in India, when the value of the dollar goes up, rupee value decrease. In order to build a network among dollar, oil, and rupee, we need to describe the points in an accurate manner.
- During rising price of the oil, if the dollar value increases, the rupee value will drastically fall.
- When the oil price decrease but the dollar increase, it put a mild impact on rupee value.
- The time when oil and dollar both are in a downward movement, the value of rupee moves upward.
Crude Oil Price Impact on Stock Market Trends
Now, let’s go through Crude Oil Price Impact on Stock Market Trends.
During the last few years, the increase in the price of the crude oil had a direct as well as indirect impact on the Indian stock market. Though it is hard to imagine sometimes a rise in the oil price carries a negative effect on the stock prices at the stock exchanges in India.
The main fear which drives the investors is that the profit margin of the companies will decrease because of the increase in the oil price. An increase in the oil price mainly increases the operational cost, fuel cost, transportation cost of the companies, obviously the profit margin of these companies will certainly decrease. This is one of the main reasons that the buyers become susceptible to the companies’ future that is hugely dependent on oil. This restricts the investors to invest in these companies. As a result, stocks price falls drastically, a negative effect spread on the overall market scenario. This phase is somehow temporary as the companies try to adjust in the price level to make up for the increased price in the oil to maintain the profit margin.
Hence, Crude Oil Price Impact on Stock Market Trends is mainly triggered by the panic of investors rather than actual impact. Apart from this, it is always wise to wait and watch after a rise in the oil prices takes place in the market. In this phase, it is comparatively safer to invest in sectors that are not really dependent on oil such as the software industry, the banking sector, financial companies etc.
How Oil Price and Dollar Affect the Stock Market?
As I stated above that dollar and rupee are inversely related to each other. When crude oil price and dollar decrease, the stock market has a positive effect and vice versa. Here, is a trick in it. Crude oil price is adversely related to some of the oil company stocks. Just like the present scenario, today on 14th Nov, crude oil price drastically falls while the oil companies like Hind Petro, BPCL share price moves upward direction. This happens because the oil market falls.
One of the main objectives of this article is that oil is one of the important factors that effect almost on all the economy of the country. For this purpose, we analyze the positive as well as the negative relationship between oil prices, inflation, and stock exchange of India.