Oil price surge not always a crude shock for Indian equities

An ET study shows the correlation between crude oil prices and Nifty’s movement has been positive over the last two decades.

In the past two decades, the benchmark Nifty has rallied in six out of the nine times when crude prices ran up. In the month after the rally, the stock benchmark gained on five out of the nine times. The losses on three out of the four times have been less than 2%.

Similarly, in the three-month period after the crude oil’s price jump, Nifty rose on six out of the nine occasions.

Analysts say stocks and crude mostly tend to move in tandem as both these assets respond to risk sentiment similarly.

“A rise in crude prices in line with the long-term economic outlook does not have a negative effect on the market,” said Vinod Nair, head of research, Geojit Financial Services. “However, India being a heavy importer of crude oil, any abnormal increase has a direct negative effect on the near-term fiscal and corporate financials.”

Brent crude climbed on Tuesday above $ 80 per barrel – a three year high – amid supply constraints. Though the sentiment has been shaken of late, the market has remained firm.

Between 2001 and 2007, both Nifty and crude moved in tandem to a peak and crashed at beginning of 2008. In February 2009, both these assets formed a low and again moved together till early 2011. However, for a shorter period in February-May of 2011, there was an inverse correlation during which the Nifty crashed, but crude continued to move higher.