Global Oil Price Hike VS Investors

Developing economies like India have been struggling to cope with the global rise in prices of crude oil for years now.  Though the prices seem to drop down a little due to continuous fluctuations in the market yet the rise is too high to be tackled at once.

Can uptrend in global oil prices dent the investors’ confidence?

The rise in global oil prices tends to affect the economy of a developing country that is heavily dependent on crude oil. The uptrend in the oil prices has depreciated the value of the currency when pitied against the dollar which has severely affected almost all sectors including the investment market of a developing economy.

Let’s take a look at how oil prices have staggered the confidence of investors:

  • The hike is oil prices have severely affected the Current Account Deficits of many developing countries.
  • The downward pressure on the global demand for crude oil has increased consumer prices and slowed the momentum of growth of the economy.
  • The oil price hike has increased the cost of consumer goods and services and further depreciated the value of the rupee which goes without saying that the investors are drastically affected too as they are paying more but their returns have lowered significantly.
  • The increase in oil prices have led to inflation which is making it difficult for domestic investors to save money for investment after meeting their basic needs and requirements. The limited savings at hand have considerably reduced their willingness to invest which is further deteriorating the economy.
  • The importers are suffering due to the hike in global oil prices but the exporters seem to reap benefits for the time being. Investors who have put their money in oil marketing companies and other companies with significant foreign debt are facing a dent in their returns.
  • The FFIs are also losing interest in making investments in a staggering economy which again puts a burden on foreign capital and continues to threaten the stock market.
  • Even the gold is bearing the brunt of the uptrend; investors with limited and strategic exposure to gold are able to cope with the dent faster than those who have more exposure to gold and had decided to sell them off in the low market.
  • The hike in the cost of building raw materials has also reduced the demand for new construction thereby slowing down the returns of those investors who have put their money into building and construction sector.

Things to consider for minimising the dent on returns

To remain on the safe side, investors should consider about investing in sector funds like IT, Pharma, and FMCG which tend to have a brighter future and is good for the long run.

Irrespective of the growing prices, the steady upward demand for electric vehicles will further raise the demand for gasoline and diesel in the next few years.  Talk to our professional financial advisors to know which sector is the best to invest in to tackle the impact of rising prices of crude oil.

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Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not an indicator of future returns. Wealth Redefine is a AMFI registered Mutual Fund distributor – ARN - 85350

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