Collapse of Crude Oil has triggered Rise of Indian Economy

Our blog readers have posted several comments on low price Oil and Steel stocks. This post will help to provide necessary update on current situation.

CRUDE OIL

Crude oil prices have been falling since  last year. This is because production grew faster than projections and demand deteriorated faster than expected, resulting in an excess of oil for sale in the world. In April 2015 Iran signed an agreement to end its nuclear program and let in international inspectors to prove its commitment. After confirmation of Iran's compliance,  sanctions were removed and bring Iranian oil to international markets. Currently Iran is  producing  3 million barrels per day. Iran's intention to further ramp up the oil production has fallen like thunderbolt on growth of OPEC countries. Oil prices will continue to be subdued because OPEC is not cutting down production and alternative sources of energy are adding to the supply. The Russia added fuel to fire by refusing to bend to market forces and so have made up the shortfall in their budget caused by falling oil prices by pumping out more oil. The Russian need for income means they are unlikely to make a tactical cut in oil output. Increased production adds to the downward pressure on crude oil prices.  The fall in crude oil prices is a blessing for the Indian economy as it would reduce India's current account deficit, aid infrastructure development, help in saving precious Forex reserves and also benefit manufacturers as their input cost will go down. Recent fall in Chinese growth projections and the end of sanctions against Iran have given the reason to downgrade the projections of crude oil prices. The oil price is not going to rise in near future.

Indian manufacturing sectors will have a very positive impact due to falling oil prices directly as well as indirectly for automobiles, plastic, petrochemicals,  paints, tire, fmcg, lubricant , synthetic yarns, aviation etc. Oil drilling and exploration companies will get impacted negatively. Overall, the collapse of the oil prices and Chinese slow down will have positive out come for the Indian economy.

COTTON

Cotton prices also have crashed since last year. China's cotton and textile industry is on the decline as its competitiveness is hurt by decreasing labour availability , old manufacturing  machines and process  increasing production costs. Global market share of China for cotton demand is decreasing at 1% per year, while India will increase its share at same rate 1% year and this trend will continue for next 4 -5 years. Indian Prime Minister Narendra Modi has pledged to boost manufacturing in the country and launched the 'Make In India' campaign by improving the business environment and favorable business policies and rising investment in textile sector, a young demographic profile and competitiveness as a low cost production base will support growth in the textile sector, in turn boosting the exports in medium term.

Biggest beneficiary of lower cotton prices and decline of Chinese textiles industry will be Indian garment industry. Specifically high quality garment manufacturing companies will have better margin in internal market as well as in export. 

STEEL

Surplus steel production from China has led to a crash in steel prices. China is now selling its excess steel to other countries at very cheep rate. It has put tremendous pressure on Indian steel industry and other global metal producers. It has impacted negatively on mining and steel companies in India.

End user companies and those converting  steel into final products are getting maximum benefit of low cost steel because they are not passing the benefit to consumer in same ratio. It will also help infrastructure  companies as well as Indian government in mid term.

In the  series of Best Stock Picks next stock will be posted on 16.10.2015. It is low price, very strong fundamental stock and it will get immense benefit from fall of above commodity prices.

We received several comments regarding low price stocks. Several blog reader holding penny stocks without any fundamental and poor growth prospectus. They can swap it with this stock for decent gain.

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