Realty, oil and gas sink the most in global sell-off

Fuel fundamentals remain strong; go for select realty counters

Realty and oil and gas have been hit most by the Chinese market fall. The realty index lost 10.93 per cent, and the oil and gas one 9.2 per cent.

Oil marketing companies (OMCs) — Indian Oil, Bharat Petroleum, and Hindustan Petroleum — and upstream firms such as Oil and Natural Gas Corporation and Oil India declined four to 11 per cent. But, the fundamentals remain strong.

Piyush Jain at Morning Star says once the correction is over, the stocks will find favour. Oil and gas reforms such as diesel and petrol price de-regulation and falling crude oil prices have led to a reduction in the working capital cycle and interest costs of OMCs. While public-sector upstream companies, too, will benefit from a reduction in subsidy, a lack of clarity on subsidy-sharing policy is a negative.

Among private companies, Reliance Industries feels the heat of lower crude oil prices, given its presence in the refining segment. But its profitability erosion is not as much as oil producer Cairn India's. Lower Brent crude oil prices hit Cairn India's realisations and profitability. Further, the merger with Vedanta put a dampener on things.

Among realty stocks, HDIL was the biggest loser, shedding 19 per cent, followed by India Bulls Real Estate, 17.4 per cent, and DLF, 15.56 per cent. Harsha Upadhyaya of Kotak Mahindra Asset Management says risky sectors are first to get hit when there is a global sell-off. High debt, promoter pledge, lack of sales momentum and fewer launches plague the sector. Adhidev Chattopadhyay of Elara Capital says stick to Bengaluru- and Pune-based developers such as Prestige Estates and Brigade Enterprises, respectively.