 "Oil counters skid on slick rupee")
Shares of state-owned oil marketing companies came under intense selling pressure on Tuesday as the rupee yet again breached the 60-a-dollar mark in afternoon trade. Also, impacting the sentiment was the report that the Cabinet is likely to consider the proposal for sale of 10 per cent of government’s stake in Indian Oil Corp (IOC) on Wednesday.
All three listed oil marketing companies (OMCs)– Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corp Ltd (BPCL) and IOC cracked in the range of eight to 11 per cent on BSE.
“The government is likely to focus more on maintaining current account deficit (CAD) and the overall fiscal situation. There are chances that the rupee will continue to slide against the US dollar. Secondly, the EPP, or the export parity pricing, could be a reality in the near-term, which will negatively impact the OMCs’ gross refining margin by $2.7 per barrel. Thirdly, the government will try to reduce its own subsidy burden. As a result, the upstream or downstream companies will have to bear a higher burden. Fourthly, the diesel price hike could be a distant reality given the coming elections. All put together, the oil and gas stocks have cracked badly in trade today,” said Sudeep Anand, an analyst with IDBI Capital.
On slippery slope
Among individual stocks, HPCL was the largest loser, skidding 11 per cent to Rs 199. The stock closed its lowest level since November 2008 on BSE. IOC, on the other hand, shed eight per cent to touch its four-year low at Rs 195, while BPCL was down nine per cent at Rs 312.
Oil and Natural Gas Corp (ONGC) was down nearly six per cent at Rs 281, while OIL India and GAIL India were down by three per cent each at Rs 510 and Rs 307, respectively. Essar Oil and Reliance Industries Ltd (RIL), from the private sector, lost over three per cent each on BSE.
The BSE Oil and Gas index, the largest loser among sectoral indices, was slipped nearly four per cent, or 341 points, compared to 1.25 per cent, or a 245-point drop in benchmark S&P BSE Sensex on Tuesday. This is the first time the rupee breached the 60-per-dollar mark after the Reserve Bank of India (RBI) announced liquidity tightening measures on July 15.
Outlook
While the fall has been steep, analysts maintain a cautious view on this space and suggest investing selectively. OMCs, though, seem to have fallen out of flavour for now.
“The road ahead for the stocks will depend on how the rupee pans out. If the rupee stabilises, I think there are chances that these counters can rally. ONGC is a good bet. There is value in the OMCs, but these stocks are not for the risk averse as one can expect volatility in the near term due to volatility in the rupee and upcoming IOC divestment,” said Dayanand Mittal, senior analyst at Ambit Capital.
“We like some of the stocks in this space which we are bullish on such as ONGC and Petronet LNG. One can buy them at the current levels. As things stand, we are not bullish on the OMCs,” said Bhavesh Chauhan, an analyst with Angel Broking.
“Any stock that has seen offer for sale (OFS), especially the public sector companies, has seen a sharp correction. Since there are reports of the Cabinet taking up IOC’s divestment, the sharp fall in the stock is not surprising. Besides IOC, the government can also divest stakes in HPCL and BPCL as well over time. One should stay away from this space for now,” said an analyst from a local brokerage.
Anand of IDBI Capital says till there is some clarity on the rupee’s trajectory, these stocks should remain under pressure. “Since Tuesday’s fall has been steep, there can be a small recovery in the near term. Valuation-wise, however, these stocks do look cheap at the current levels,” he adds.
Nitin Tiwari of Religare Institutional Research says if the currency weakens further, uncertainty in earnings will increase. He sees value in RIL, ONGC, and GAIL India from a valuation perspective.
All three listed oil marketing companies (OMCs)– Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corp Ltd (BPCL) and IOC cracked in the range of eight to 11 per cent on BSE.
“The government is likely to focus more on maintaining current account deficit (CAD) and the overall fiscal situation. There are chances that the rupee will continue to slide against the US dollar. Secondly, the EPP, or the export parity pricing, could be a reality in the near-term, which will negatively impact the OMCs’ gross refining margin by $2.7 per barrel. Thirdly, the government will try to reduce its own subsidy burden. As a result, the upstream or downstream companies will have to bear a higher burden. Fourthly, the diesel price hike could be a distant reality given the coming elections. All put together, the oil and gas stocks have cracked badly in trade today,” said Sudeep Anand, an analyst with IDBI Capital.
On slippery slope
Among individual stocks, HPCL was the largest loser, skidding 11 per cent to Rs 199. The stock closed its lowest level since November 2008 on BSE. IOC, on the other hand, shed eight per cent to touch its four-year low at Rs 195, while BPCL was down nine per cent at Rs 312.
Oil and Natural Gas Corp (ONGC) was down nearly six per cent at Rs 281, while OIL India and GAIL India were down by three per cent each at Rs 510 and Rs 307, respectively. Essar Oil and Reliance Industries Ltd (RIL), from the private sector, lost over three per cent each on BSE.
The BSE Oil and Gas index, the largest loser among sectoral indices, was slipped nearly four per cent, or 341 points, compared to 1.25 per cent, or a 245-point drop in benchmark S&P BSE Sensex on Tuesday. This is the first time the rupee breached the 60-per-dollar mark after the Reserve Bank of India (RBI) announced liquidity tightening measures on July 15.
Outlook
While the fall has been steep, analysts maintain a cautious view on this space and suggest investing selectively. OMCs, though, seem to have fallen out of flavour for now.
“The road ahead for the stocks will depend on how the rupee pans out. If the rupee stabilises, I think there are chances that these counters can rally. ONGC is a good bet. There is value in the OMCs, but these stocks are not for the risk averse as one can expect volatility in the near term due to volatility in the rupee and upcoming IOC divestment,” said Dayanand Mittal, senior analyst at Ambit Capital.
“We like some of the stocks in this space which we are bullish on such as ONGC and Petronet LNG. One can buy them at the current levels. As things stand, we are not bullish on the OMCs,” said Bhavesh Chauhan, an analyst with Angel Broking.
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“Any stock that has seen offer for sale (OFS), especially the public sector companies, has seen a sharp correction. Since there are reports of the Cabinet taking up IOC’s divestment, the sharp fall in the stock is not surprising. Besides IOC, the government can also divest stakes in HPCL and BPCL as well over time. One should stay away from this space for now,” said an analyst from a local brokerage.
Anand of IDBI Capital says till there is some clarity on the rupee’s trajectory, these stocks should remain under pressure. “Since Tuesday’s fall has been steep, there can be a small recovery in the near term. Valuation-wise, however, these stocks do look cheap at the current levels,” he adds.
Nitin Tiwari of Religare Institutional Research says if the currency weakens further, uncertainty in earnings will increase. He sees value in RIL, ONGC, and GAIL India from a valuation perspective.