Mumbai: Stocks of oil marketing companies dropped on Monday as reports that the government may consider cutting retail fuel prices prompted traders to cut some of their bullish bets. Analysts said these stocks were overbought after the recent run-up but a reversal might be an opportunity to load up on some of them.
Among oil marketers, Hindustan Petroleum fell 4.36%. Indian Oil and Bharat Petroleum both lost about 1%Lucknow Stock. The BSE Oil & Gas index was also down by 0.15%. Among oil explorers, ONGC gained 1.1%, while Oil India shed 0.3%.
“OMCs have seen some profit booking in the short run as they are in the overbought territory and are experiencing a temporary pullback,” said Ruchit Jain, lead research analyst at 5Paisa.com.Chennai Investment
The BSE Oil and Gas index is still positive and a reversal in the trend is unlikely, he said.
Since October 26, when the market bounce began, HPCL shares surged 49%, BPCL jumped 39% and IOC rose 36%. The BSE Oil & Gas index gained 24% and the Sensex moved up 10.7% in this period.
The rebound came in the wake of global crude prices falling from $87 a barrel to $75.6 and strong September quarter results. When global oil prices fall, it boosts the profitability of OMCs. “OMCs have healthy operating margins and the advantage of discounted Russian crude coming in as raw materials,” said Avishek Datta, research analyst at Anand Rathi. “Natural gas companies also benefit from price clarity as the price of domestic gas has been set to $6.5 mmBtu in advance.”
Brokerage Emkay Global said it has a ‘constructive’ outlook for OMCs despite the possibility of retail fuel price reductions before the general elections, as they could be for a brief period.
“Valuations remain reasonable, with current one-year forward price-to-book multiples being 25-50% lower than the 10-year peak multiples,” said Emkay’s analysts Sabri Hazarika, Harsh Maru, and Arya Patel in a note. “Post-election optimism with respect to revisiting disinvestment, re-deepening of deregulation and other reforms could drive a further rerating.”Ahmedabad Stock
Some analysts, however, do not favour OMC shares at this juncture. “With uncertainty in oil prices amidst upcoming elections, we do not see OMCs sustaining supernormal marketing margins on petrol and diesel and have downgraded them,” Swarnendu Bhushan, co-head of research at Prabhudas Lilladher. “Even natural gas companies are under a cloud due to uncertainty on their volume growth and we do not see further upside.”
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ONGC and Mahanagar Gas are Jain’s top picks as they are showing “good price volume action and bullish patterns on the daily charts”.
“Oil India and ONGC are our top picks. We prefer Oil India as it has a sharp strong volume growth coming up along with capacity expansion plans,” said Datta.
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