Oil prices fell below $30 a barrel on Monday as the worldwide coronavirus outbreak worsened over the weekend, exacerbating fears that government lockdowns to contain the spread of the disease would spark a global recession.
Pidilite Industries surged up to 8 per cent at Rs 1,592 and Asian Paints gained 5 per cent at Rs 1,765 on the BSE. These companies are the key potential beneficiaries of lower crude prices as for both these companies, crude & crude derivatives account for around 50-60 per cent of cost of goods sold (COGS).
Fast moving consumer goods (FMCG) giant, HUL, also surged 6 per cent to Rs 2,065, as crude and crude derivatives account for around 30-35 per cent of the company's COGS.
All these stocks are 7 per cent to 12 per cent away from their respective all-time high levels.
At 01:20 pm, Nifty FMCG index, the second largest gainer among sectoral indices, was up 3.6 per cent, as compared to 1.4 per cent rise in the benchmark Nifty50 index.
In the consumer staples space, most companies should benefit from lower crude prices as their raw material (RM) and packaging material (PM) costs will be linked to crude derivatives, according to analysts at JP Morgan.
Analysts at Emkay Global Financial Services said that these companies do not seem to be meaningfully impacted from Covid-19 disruptions in China. The overall impact is limited to commodities imported from China, particularly VAM, menthol, titanium dioxide and certain other chemicals.
“China is not the biggest exporter to India and as per our checks with management, supply disruptions are not expected given sufficient inventory levels and the availability of supplies from other countries. The key benefit for the sector is from the decline in crude prices. Paint companies and Pidilite are the biggest beneficiaries, followed by home and personal care (HPC) companies,” the brokerage firm said in recent report.