Crude oil prices have fallen sharply in the recent past on oversupply concerns and on US allowing some countries to import the commodity from Iran. Oil forms a majority part of Indian imports.
Brent crude futures, the international benchmark for oil prices, have slipped around 30 percent since early October to trade around $60 a barrel from around $86 a barrel.
Following which, the Indian rupee also appreciated sharply from record low of 74.45 a dollar to $71.75 a dollar now.
As a result, the petrol and diesel prices in the country declined, too, from the peak of Rs 91 per litre and Rs 80.1, respectively, to Rs 75.8 and Rs 67.7, respectively.
Motilal Oswal believes that sustenance of oil prices at current levels can provide a welcome relief for India's external balance, sentiment and market valuations.
Crude oil prices have a serious bearing on the key macro variables like current account deficit (CAD), fiscal deficit and inflation.
Overall, a $10 per barrel decrease in the price of crude oil pushes down CAD by around $11 billion, which is equivalent to 0.4 percent of GDP.
"Assuming a full pass-through of reduced oil prices to retail fuel prices, a $10 per barrel reduction in the price of crude oil would push down retail petrol and diesel prices by around Rs 4 per litre," Motilal Oswal said.
Given the low weightage (2.38 percent) of fuel components in CPI, even a sharp change in the oil price does not result in significant movements in CPI inflation, but it impacts WPI inflation numbers significantly, it added.
A 10 percent increase in crude oil price can lead to an impact of around 150-200 bps on WPI (including indirect impact).
The impact of rising oil prices is also, directly or indirectly, felt on corporate earnings as oil is key raw material for some sectors.
Earlier, the rise in crude oil prices has impacted the margins of sectors like consumer/auto/cement in first half of FY19 and also raised the bogey of fuel price regulation for the oil marketing companies (OMCs), resulting in a sharp correction in the stock prices.
In fact, if crude prices rise above $85, a further earnings downgrade for consumer/auto/OMCs/Cement sectors cannot be ruled out, Motilal Oswal said.
The cooling of crude oil prices do provide cushion for margins in these sectors, it added.
Oil & gas, consumer and automobiles sectors are direct beneficiaries of price movements in crude oil. Meanwhile, financials benefit indirectly from lower oil prices, given the cool off in bond yields, easing liquidity and potential lower inflation trajectory, according to the brokerage house.
OMCs do benefit from moderation in oil prices, but Motilal Oswal does not expect them to re-rate in the near term, given the imminent general elections in first half of CY19.
Key beneficiaries are oil retailers (BPCL, HPCL, IOC), Pidilite Industries, Asian Paints, Hindustan Unilever, Godrej Consumer Products, Maruti Suzuki, InterGlobe Aviation, SH Kelkar and tyre companies, it said.
Indirect beneficiaries are financials - ICICI Bank, Federal Bank, HDFC, LIC Housing Finance, and M&M Financial which are its top ideas.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises readers to check with certified experts before taking any investment decisions.
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