Muted earnings growth ahead for OMCs as refining margins under pressure

Soft refining margins, higher working capital, subsidy sharing and capex are key risks

The stocks of oil marketing companies (OMCs) BPCL, HPCL and IOC have rebounded sharply by up to 22 per cent from their lows in May. 

With the overhang of any price cuts out of the way after the general elections and a stable government expected to continue reforms in the sector, market sentiment had turned favourable. 

Moreover, OMCs also posted steady March quarter numbers while crude oil prices saw some correction. Valuations, too, have remained attractive.  

However after the recent gains, analysts have turned cautious as refining margins continue to remain under pressure. Despite good marketing margins and inventory gains, refining margins were