2020 Corona crash v/s 2008 Financial crash: How did Reliance stock price fare vis-a-vis crude oil & Sensex?
Corona-virus, quarantine, lock-down and travel ban are some of most commonly searched keywords on Google search engine in this year 2020 and these words reflect in price destruction across businesses globally. Crude oil (Brent) prices hit multi-year lows due to price war between Saudi Arabia (OPEC) and Russia. Businesses globally have been battered with lock-downs and travel bans ever since corona virus impact hit the world and global commodity and stock markets reflected this impact in their price.
As on 24th March’20 at the time of writing this article, Brent Crude Oil was trading around 30$ while Reliance Industries, the first Indian company to exceed $100 billion market capitalization closed the day at ₹ 946 (NSE-India) and Sensex at 26,674.
Year-to-date in 2020, price destruction was witnessed with Brent crude oil losing 54% and Reliance Industries 37.31% and Sensex 35.42% respectively.
Crude prices soared to all-time high of 140+ $ in 2008 July before Lehmann collapse while Reliance Industries and Sensex saw a peak in the same year of ₹ 748 (NSE-India) and 20686.
Journey from 2008 to 2020 saw crude (Brent) gyrating between a high of 125$ and low of recently touched 24$ per barrel and during same period Reliance stock witnessed a high of ₹ 1599 and recent low of ₹ 884. Sensex also saw a high of 41945 and recent low of 25981 levels.
Crude oil prices are staring at lower levels in the nearby future as price wars are not helping OPEC which in turn is beneficial to all end users of crude oil. Both Reliance and Sensex made new highs after financial crisis hit the global markets in 2008 and doubled till corona-virus happened this year. With crude oil prices at 17-year low levels both India being an importer of oil (85% of its oil is imported) and Reliance being a bulk purchaser of refinery oil are set to benefit. Reliance’s gross refinery margins are expected to take a hit due to corona-virus but at same time lower crude oil prices would help to improve its margins by 150 to 200 basis points over the next one year. With company aiming to become debt-free in the next 12 to 18 months, crude oil price fall is a blessing in disguise. Similar to the recovery of the stock price after 2008 market crash, Reliance is expected to revisit its recent highs as markets recover.
Managing Partner@C2C, Pune
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