For India, a country that imports over 80% of its crude oil requirements, falling oil prices bring major economic advantages
Global crude oil prices are experiencing a sharp decline as April 2025 closes, with Brent crude futures plunging by over 21% since the beginning of the year to trade near the US$59 per barrel level. Being one of the biggest corrections observed in the last few years, this fall in prices came about through an unfortunate collision of global supply-side factors and subdued demand growth. The accelerated supply hikes by the OPEC+ alliance have flooded markets with oil supply, bringing forth strong worries concerning another looming surplus.
Economic and Macro-Level Impact on India
Being a net importer, India’s economy remains very sensitive to any changes in crude prices. Crude oil is an essential input for industries like transport, manufacturing, and power generation. Falling oil prices mean a drop in input costs for these sectors.
On a macroeconomic scale, some analysts say that with every US$1 decrease in the price of crude oil, India’s current account deficit shrinks by approximately US$ 1.5 billion. Reduced oil import costs have a direct bearing on narrowing the trade deficit; they also aid the balance of payments and strengthen the Indian rupee.
In early May, with the rupee trading below 84 per U.S. dollar, an appreciation was recorded for the first time since October 2024. This strength can be attributed in part to reduced oil import burden and rising foreign inflows into Indian equities.
Lower crude prices also contribute to reduced inflationary pressure. With fuel being a significant component of the Consumer Price Index (CPI), subdued oil prices help keep inflation within the Reserve Bank of India’s comfort range. This enhances the central bank’s flexibility in maintaining a pro-growth monetary stance without the need to tighten policy aggressively.
Positive Momentum in Indian Equity Markets
The Indian equity markets have responded positively to the slide in crude oil prices. On May 2, 2025, the BSE Sensex surged past the 80,500 mark, while the Nifty 50 closed at 24,346.70. These gains were supported not just by falling oil prices but also by improved investor sentiment, easing global trade tensions, and renewed buying by Foreign Institutional Investors (FIIs).
Market observers note that declining energy costs provide a broad-based stimulus for the economy. Increased corporate profitability, lower inflation expectations, and a more stable currency combine to create favorable conditions for Indian equities.
Sector-Specific Effects
The decline in crude oil prices has had varying effects across sectors, depending on whether a company is a consumer or a producer of oil and oil-derived products.
Oil & Gas
Upstream oil exploration and production companies such as ONGC and Oil India have come under pressure. Lower crude prices directly impact their revenue and profit margins, resulting in a decline in share prices. These companies earn more when crude prices are high, so a sustained fall in prices reduces profitability.
On the other hand, downstream oil marketing companies (OMCs) like Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum have experienced mixed reactions. While lower crude prices reduce the cost of raw material (crude oil), they also lead to fluctuations in pricing policies and potential reductions in marketing margins, especially if the government maintains price controls.
Aviation
Airlines are among the biggest beneficiaries of falling crude prices. Aviation turbine fuel (ATF) constitutes a major portion of an airline’s operating expenses. With ATF prices declining, airlines such as IndiGo and SpiceJet have seen improved operating margins, which has translated into a rally in their stock prices.
Paints and Tyres
These sectors use crude derivatives like petrochemicals and rubber in manufacturing. Companies such as Asian Paints, Berger Paints, MRF, and Apollo Tyres stand to benefit from reduced input costs. The cost savings improve profit margins, potentially leading to better earnings and favorable market performance.
Logistics and Transportation
Logistics companies benefit from cheaper diesel, which lowers freight and transportation costs. Stocks like Blue Dart and Delhivery may see improved operational efficiency and profitability in the near term. Transportation sectors reliant on fuel—such as public transport and commercial freight—are also expected to perform better with controlled expenses.
FMCG
The fast-moving consumer goods sector indirectly benefits from lower oil prices through reduced packaging costs (often made from plastic, a petroleum derivative) and improved rural demand supported by controlled inflation. Companies like Hindustan Unilever, ITC, and Dabur could see enhanced consumer sentiment and purchasing power in rural and urban markets alike.
Influence on Investor Sentiment and FII Flows
The favorable impact of falling crude prices has not gone unnoticed by global investors. FIIs, who had turned cautious during the first quarter of the year due to global macro concerns, have resumed net buying in Indian equities. In April 2025, they invested over ₹3,200 crore in domestic markets, and the trend continued in early May with strong inflows.
The reduced geopolitical risk premium in oil, along with India’s improving macroeconomic indicators, makes Indian equities more attractive relative to other emerging markets. As a result, FIIs are redirecting capital to Indian markets, boosting liquidity and contributing to the upward movement of indices.
Risks and Future Outlook
While the current environment favors Indian equities, a few risks remain. Excessively low oil prices for prolonged periods may disrupt the global energy sector, leading to financial instability among oil-producing nations and triggering volatility in global markets.
Moreover, domestic upstream oil companies will continue to struggle with margin compression if oil prices remain subdued. There is also the potential for volatility if OPEC+ reverses its stance or if geopolitical disruptions suddenly affect oil supply chains.
The continued decline in oil prices presents a unique opportunity for India to strengthen its macroeconomic stability while enhancing the competitiveness of its industries. For equities, particularly in oil-sensitive sectors, the environment appears favorable. However, global developments will need close monitoring, as the oil market remains inherently volatile and reactive to policy shifts and geopolitical events.
