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Which stocks are affected by crude oil prices? | Crude oil impact | Petroleum stocks - YouTube
Channel: Groww
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hey guys welcome to another episode with
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me shashank and in today's episode we're
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gonna talk about a topic that impacts
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everyone's lives and i'm not only
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talking about myself it even impacts the
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business tycoons or the billionaire
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tycoons and it also affects the normal
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workers in our economy now what is this
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impact today we're going to talk about
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the impact of crude oil prices on the
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indian stock market
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[Music]
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now first let's understand the
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importance of petroleum or crude oil now
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petroleum or oil is probably the most
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important commodity in the world today
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the entire economies of big countries
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like russia saudi arabia and small
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countries like qatar kuwait and iraq are
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only based on these oil reserves now
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petroleum is not only used to do
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transportation like petrol diesel and
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jet fuel but they're also used in a lot
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of raw materials to make a very large
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variety of chemical products like
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pharmaceuticals solvents fertilizers
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pesticides synthetic fragrances plastics
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paints artificial rubber and a lot more
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so it's not just limited to
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transportation now
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another fun fact is that oil accounts
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for a major part of the world's energy
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generation ranging from 32 percent in
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european union and asia to 53 in the
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middle east now the production
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distribution refining and retailing of
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petroleum products represents the
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world's largest industry in terms of
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dollar value no wonder oil is actually
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called black gold now wait for a bit the
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gdp of both oil producers and consumers
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is now heavily tied to oil prices any
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fluctuation will affect the gdp now
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obviously given the widespread usage of
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petroleum oil price volatility also
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affects the overall inflation rate in
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all oil consuming nations and we're
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going to look at all of that very soon
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now let's understand the impact of crude
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oil on the stock market and economy now
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the direct impact of crude oil prices is
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on retail petrol and diesel prices now
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india is an oil importing nation with 80
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percent of domestic requirements being
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imported it also also forms around 20
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percent of our import bill and has a
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direct impact on our dollar reserves
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again guys if you are enjoying this
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video i want you to guys to click on the
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like button and also click on the
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subscribe button okay and going ahead
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now prices of petrol and diesel in india
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are pegged to a 15 day rolling average
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of international prices for these
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products now any rise in crude oil
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prices directly impacts the
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international prices for petrol and
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diesel which are obviously reflected in
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the domestic prices of these products
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given the importance of power and
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logistics in any working economy any
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rise in crude oil prices directly
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translates to a problem which increases
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the cost of power cost fuel costs and
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obviously your transportation cost now a
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rise in crude oil prices is detrimental
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to earnings potential and margins
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profile for a lot of companies that have
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any costs that are significant part with
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respect to raw materials right now
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another problem is recently if you have
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seen a lot of companies coming out of
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the results their margins have slightly
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gone down because the raw material went
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up the transportation cost has gone up
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why because the oil prices have also
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gone up quite significantly now the ones
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taking a direct hit are the commodity
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based industries with limited pricing
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power like cement steel logistics they
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have limited pricing power so they can't
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experiment too much on it and the ones
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that are not able to pass this extra oil
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price increase in the form of a selling
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price have to face the problem of margin
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degradation right now if you can pass
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this price on if fuel price goes up by
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10 percent i pass it on to the customer
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i'm safe but if i can't do that then my
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margin will start going down industries
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that use petroleum products as raw
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materials are tires lubricants footwear
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paints chemicals plastic products right
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and these guys face a massive rise in
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raw material cost why because they need
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this to make all these products now the
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companies who are unable to pass this
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increase in raw material cost in the
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form of higher selling prices will again
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see a margin decline as well so both
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problems happen now the biggest impact
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of an increase in crude oil price is the
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rise of inflation and we have seen that
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it happens in a growing economy now
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given the widespread usage of petrol and
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diesel for power transportation fuel
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petrol and diesel become a vital part of
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consumption baskets in india and across
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the world also for every 10 dollar
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increase in oil prices relates to an
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inflation rise of 0.1 to 0.3 percent in
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india okay so let that set in now the
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impact becomes more heightened when oil
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prices are already at higher levels and
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it keeps going up and up right the
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increase in inflation is generally bad
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for the economy because because why it
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directly impacts the earning power of
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the economy and leads to a rise in all
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prices of essential goods now this leads
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to lower savings rate one problem big
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problem lower savings rate second if you
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have lower saving rates it'll
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automatically impact your disposable
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income so i don't have extra income in
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my pocket i'm spending so much on all
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this and my overall spending goes up
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investment sentiment goes down in the
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country and then you'll see a big
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problem coming on if the crude oil
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prices go up looking at the direct
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impact on the stock market any rise in
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the oil prices will have a negative
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impact different degrees for margins of
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all companies and we've seen that
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happening especially for power and
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logistic heavy companies now the ones
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that are most safe or ones that are more
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shielded from oil prices they don't care
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if all prices are going up or down can
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you guess which industry is that they
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are actually the tech companies right
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the technology companies because they're
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not dealing in physical products and
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they have very limited logistics cost so
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they are completely safe the biggest
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impact from oil prices is on the
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industries that have high logistics and
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power cost okay so we saw cement steel
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building construction airlines all of
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these have a massive impact now even the
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auto industry right automobile industry
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gets affected because if this fuel price
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goes up then the demand for vehicles may
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go down because people like you know why
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should i buy a thing right now petrol is
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you know going up so much diesel is
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going up so much let's not buy it right
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now and this will obviously increase
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their production cost also that means
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again they'll have an input cost rise
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and again that margins will go down it's
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a very bad issue another question here
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is will this affect oil prices right or
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oil companies a rise in crude oil prices
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does not have a detrimental impact on
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oil companies as the demand for oil is
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still there and the oil products remain
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constant so the oil companies don't have
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any problems in fact the oil companies
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tend to perform really well when the oil
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price goes up why because demand is
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still there and now you're selling at a
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higher rate now even power sector
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companies do very well when high oil
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prices go up right so whenever you see
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oil prices going up automatically
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understand oil companies and power
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companies are gonna do well so
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now we can basically see that crude oil
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prices
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price rises are generally detrimental to
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the indian stock market with the biggest
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impact seen in cyclical commodity
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companies and the least impact in the
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tech company so we've understood that
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and any fall in crude oil prices also
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follows the same path in rivers where
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the fall will directly cause a drop in
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inflation a drop in fuel power logistics
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cost drop in cost of production drop in
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current account deficit and import bill
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appreciation of rupee rupee becomes
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stronger and a rise in the stock market
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so we will see a good impact if the oil
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price goes down now wait you've
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understood all this but let me tell you
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one thing crude oil prices aren't the
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only factor if you think crude oil
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prices will go up and stock market will
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go down that doesn't happen because we
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can't make any direct correlation that
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oil prices will be the sole factor to
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determine whether the stock market goes
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up or down because the stock market
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moves on a variety of forces right and
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also it depends on the economy now even
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though in the last 12 months we have
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seen the oil prices going up
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consistently it has not had a negative
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impact on the stock market that much
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right now the indian stock market was
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still on a rise in the last 12 months
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and the cyclical companies including
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cement steel and others who are expected
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to have been negatively impacted from
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oil prices have also done well in this
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period so we need to remember that
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although a rise in crude oil prices has
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a negative impact on the economy and the
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stock market the stock market may react
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completely different or it may react
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with a small lag effect because whatever
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this thing happens right might come in
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the next few quarters and that will
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create an issue later on so we'll have
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to look and check what is happening
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finally guys now we've come to the end
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of this video and i hope you've got some
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beautiful understanding on what crude
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oil is how the crude oil prices actually
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affect the indian stock market which
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companies get affected by crude oil and
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which companies don't get affected by
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crude oil now tell me one thing if you
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like this video and if you have any
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comments put in the comment below and
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i'll keep putting out more interesting
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videos and if you have any video
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recommendations put in the comment below
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as well i'm happy to cover all of it for
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you again if you like this and you like
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the work of our team click on the like
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button subscribe button and follow this
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channel and we're doing some amazing
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stuff so i'll keep you tuned in for
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everything else again thank you for
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watching this video this is me shashank
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udapa signing off take care see you guys
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bye
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investments in securities market are
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subject to market risks read all the
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related documents carefully before
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investing please read the risk
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disclosure documents carefully before
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investing in equity shares derivatives
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mutual fund and or other instruments
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traded on the stock exchanges
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