Crude oil prices have risen by 25% in 2019 so far. Brent crude futures contracts that are expiring in April are currently at $66.03/barrel. However, despite the country’s heavy dependence on crude oil imports, Indian equities haven’t reacted negatively to this.
India’s stock market appears to be tolerant of rising crude oil prices, provided they remain below the $80/barrel mark, according to an analysis by HSBC Global Research. It’s a different story when they rise beyond that threshold.
“On the past three occasions that oil prices broke through $80/bbl, the market witnessed a sharp sell-off, the latest being in September-October 2018," HSBC Global Research said in report on 14 March.
Take a look at the movement of the MSCI India Index in response to Brent crude prices in the past two decades. There can be exceptions. India joined the global equities rally of 2012-13 fuelled by the US Federal Reserve’s quantitative easing programme, though crude oil prices were at $100/barrel.
However, there are hardly any instances of corrections in Indian equities when crude oil prices are rising but are below the $80/barrel mark.
As such, it isn’t surprising why the current rally in crude oil hasn’t got investors worried.