Industry Odisha Bureau, Sep 30: Crude has stayed expensive for six months. Yet India’s market sell-off turned sharp only in September. Delayed cost transmission explains part of it, making Q2 earnings a crucial margin test.
September has probably been the Nifty’s worst month in 25 years. Oil is taking much of the blame, with Brent at $105-$107 a barrel. Yet the oil spike is hardly new. Crude has been expensive since March.
So why has the market reaction turned sharp only now? One overlooked answer is timing. Companies do not all pay today’s crude price today. For many, the cost reaches earnings months later.
A Six-Month Shock
The shock began in late February, when West Asia conflict disrupted supplies. Before that, India’s crude basket averaged about $70 a barrel. It averaged roughly $100 during April-June. A brief ceasefire pulled it to about $82 in July. Fighting resumed, and it climbed to about $90 in August. By September, it was back above $100.
Duration matters almost as much as price. A short spike can be absorbed using cheaper stock. A shock spanning two quarters is far harder to hide.
Who Paid First
Airlines felt it almost immediately. Jet fuel is repriced frequently and is a major operating cost. One large airline added a fuel charge within about two weeks. Its April-June fuel bill still rose 86%, pushing it into a loss.
State-run oil marketing companies faced a timing mismatch. They buy crude at global prices, while pump prices adjust slowly. One major OMC swung to a loss exceeding ₹2,500 crore in April-June. Its borrowings rose by about ₹31,000 crore that quarter. Pump prices have not moved since early June. OMCs have effectively absorbed part of the shock for the wider economy.
The Warehouse Effect
Many other oil-sensitive firms looked calm in April-June. A large paint maker even reported a higher operating margin year on year. The explanation partly lies in warehouses. Products sold that quarter often used inputs bought weeks earlier. Once cheaper stock runs out, replacement materials cost more.
Materials also reprice at different speeds. Carbon black tracks crude fairly quickly. Synthetic rubber and nylon can take three to six months. Contracts add another delay. Tyre makers’ prices to automakers may reset only on fixed dates. Costs can therefore rise before selling prices catch up.
The 2022 shock showed similar lags. Cement’s pressure peaked a quarter after crude did. A large paint maker’s margin climbed back above 23% only by April-June 2023.
When the Bill Arrives
Airlines, OMCs, mining and road logistics feel the impact in the same month. Fuel is a large, direct cost they buy almost daily. Chemicals, plastics, textiles, packaging, metals, tyres, telecom and hospitality feel it quickly. Their full hit, however, can take about six months to arrive.
Cement, auto components, consumer durables, pharma, retail and apparel typically lag three to six months. For them, oil is one input among several. FMCG, automobiles, engineering, power and defence face a three-to-nine-month window. Slower cost pass-through combines with softer demand in these sectors. Banks, NBFCs and other lenders come last, within six to 12 months.
These are industry-level estimates, not company forecasts. By market value, about half of oil-exposed stocks sit in the delayed middle group. Their bill falls due largely in July-September.
Banks Feel It Last
Lenders face oil through inflation and interest rates, not fuel bills. An RBI policy panel member said in August that energy pass-through was already visible. The full impact, the member added, would emerge in coming months. Over two recent sessions, realty, banks and financial services fell hardest.
Oil is not the whole story. Foreign investors have been steady sellers, and US bond yields have risen. Costlier oil widens India’s import bill, pressuring an already weak rupee. These pressures reinforce one another.
What Q2 Will Reveal
Q2 results will offer five key signals. The first is gross margins in paints, FMCG, plastics, chemicals and packaging. Investors will check whether price increases kept pace once cheap stock ran out. The second is power and fuel costs per tonne at cement makers.
The third is how much of the July 1 tyre and auto-component price reset held. The fourth is OMC borrowings and under-recoveries, with pump prices frozen since June. The fifth is bank commentary on rates, loan demand and asset quality. That commentary arrives ahead of the RBI’s October meeting.
Q2 will also sort companies by pricing power. The question is no longer how expensive crude became. It is who now holds the bill, and who can pass it on.
