It's 2008 once again!

Fri, 25 Feb Pre-Open

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At least that is what crude oil price is suggesting. The London Brent crude touched US$ 120 a barrel yesterday, a level that was last seen in 2008. The latest rise in oil price has been fuelled by the crisis in Libya. Political violence has caused several foreign energy companies to halt or slash their production in the African nation.

The ongoing geopolitical tension in the Middle East and North Africa are likely to have serious implications for the global crude market. And if it continues unabated, it is going to dent the finances of oil consuming countries, especially the ones in the developing world.

India is likely to be one of the key sufferers of this crisis. This is given that we import almost 70% of our annual crude oil requirements. And the rising prices are likely to create an even bigger hole in the already torn pockets of the Indian government.

Sooner than later, the impact is also expected on the Indian consumer if the oil companies were to pass on the crude price rise in the form of higher petrol and LPG prices. Economists are already expecting petrol prices to jump dramatically. Added to the ongoing high inflation in food prices, the Indian consumer is on for some bad times in the short to medium term.

Coming to the Indian investor, he has already taken some battering as stock prices have crashed amidst fears of a spike in crude prices and in response to Middle East political tensions. The Indian stock markets yesterday saw their biggest one-day fall in 16 months.

In short, there's fear all around (and it has been magnified in recent times like the magnified headline fonts on some business news websites!). The short to medium term movement of stocks will depend on how things move on the abovementioned fronts - political crisis and crude oil prices.

While stock valuations have fallen quite a bit over the past few weeks, there's no denying that these can fall even further from here. But if you are able to find good companies trading at cheap valuations (after the fall), go ahead and buy. But be very sure of whatever you are buying. The only risk in stocks is the permanent loss of capital. Buying stocks without taking this fact into consideration could be suicidal.