(This article was published on October 20, 2014) Do you remember June 2008 when crude oil prices rose above $140 per barrel? Fortunately for India, the price of the crude basket fell below $90. This weakness was due to the shale gas revolution reducing the US dependence on crude oil imports and slowing economic growth reducing demand from the rest of the world, especially China. We will tell you how you, as a consumer and investor, can benefit from this trend.

Warning.

The Consumer Price Index (CPI) fell due to the drop in crude oil prices. This is due to the fact that two elements of the index, “fuel, electricity, lighting” and “transportation” occupy a large weight. Abhe Barua, Consultant Economist, ICRIER, said that as the cost of transportation falls, the prices of food, goods and services are also affected twice.

However, inflationary expectations are getting worse. Entrenched. According to the Reserve Bank of India’s household survey in September, the central bank expects inflation to hit double digits next year. As a result, inflation expectations are slowing and it may take some time for goods and service providers to pass on the benefits of lower crude oil prices to consumers.

Another issue is the sustainability of the recent low CPI (6.46%). September. “Low fuel, food and core inflation are responsible for the current low CPI, but favorable base effects also play a role. This should reverse in the coming months, so one should be concerned about the sustainability of the recent decline in inflation. Santosh Kamath, Managing Director, Fixed Income, Franklin Templeton Local Asset Management, also warned that geopolitical developments due to supply disruptions could lead to a reversal of the current low crude oil prices.

More money for investment and spending

The first impact of lower crude oil prices is fuel costs. For example, consider an urban SUV owner who drives about 65 times a day or about 20,000 kilometers per year, kilometers. His car travels 10 vehicles per liter on city roads so it consumes 20,000 kilometers per year, so 20,000 liters per year. In the last few months, the price of petrol in several states has come down by Rs. 4-6 per liter. This translates into a saving of between Rs 80,000,000 and Rs 12,000,000 per year. For families with two four-wheelers, the figure doubles. Plan Ahead Wealth Advisors Vishal Dhawan He says, “These savings are substantial. It can help you add Rs 1,300-2,000 per month with SIP.”

Lower crude prices mean more money can be spent. Barua said, “When non-discretionary spending goes down, discretionary spending goes up. This will support domestic consumption. DSPBR Investment Managers Apoorva Shah estimates that: last year the price of oil was $105 per barrel, but this year it has fallen to $95 per barrel. This means $10 billion in savings for the economy, or $61 trillion. You can save, invest or use this money.

Boosting the Stock Market

The biggest benefit of lower crude oil prices is that India’s macroeconomic environment has improved and will continue to do so. “As global growth slows down, India’s domestic economy will get a boost,” Shah said.” “As we have discussed, current account and fiscal deficits will slow down further, inflation will reduce and liquidity will improve.” The CIO of Kotak Mutual Fund said: “Any company using fuel and oil derivatives will do well as their investment costs will be lower. Upadhyaya said the oil marketing companies (OMCs) it will be the biggest direct beneficiaries. Now that they haven’t recovered properly, they don’t have to wait for the government to pay them back. Lower working capital requirements will improve cash flow and reduce interest burden.

Another indirect beneficiary will be the banking sector. Upadhyaya said, “If crude oil continues to soften, inflation will slow down sharply. This will benefit the banking and financial sector by providing the monetary authorities the scope to cut interest rates as they deem fit.” Sectors such as automobiles and capital goods are also expected to benefit from rate cuts, including tire companies where crude oil accounts for 25-35%.

Increase allocation to long-term funds

Financial planners believe that debt fund investors should increase their allocation to long-term funds. “Over the last few years, Indian investors have not continued to make money through debt funds and have been content to stay in accrual funds. However, real interest rates have been positive for the last six months. Here’s how investors can make more money. “When interest rates fall, betting on long-term funds also brings capital gains,” says Dhawan. He recommends that investors invest 25-33% of their fixed-income portfolios in long-term debt funds.

Kamath’s view is more cautious. He is concerned that a stronger dollar and Fed rate hikes could put pressure on the rupee. India’s economy has rebounded faster than expected and inflation concerns have increased-recent trade deficit data shows that it is widening due to increased imports. All these factors will make the Reserve Bank of India wary of cutting rates. Kamath does not expect a rate cut in the next six months. He expects the first cut to take place in 2015 The first cut will take place in the second half of this year. He also suspects the wound is deep. His advice to investors is to invest more money in corporate bond funds with lower average maturities and reduce investments in income funds that take long-term risk.

Gold may be softening /strong

Falling crude oil prices have led to a weaker Canadian dollar and a stabilized rupee. Dhawan said, “If the Canadian dollar and the rupee remain stable, the government will reduce or remove tariffs on gold imports, which will lead to a pullback in gold prices. We need crude oil and pay huge import costs. Falling oil prices may not be good news for the public, but if crude oil prices remain weak for some time, it will eventually be beneficial.