Investors can strike it rich with OMCs, say experts; stocks on a roll, BPCL hits new peak

Shares of oil marketing companies have been in an uptrend over the past one month and the momentum is likely to continue as factors are turning positive for these companies.

According to reports, despite coming elections the government is likely to hike diesel prices by Re 0.50 per litre and cut petrol prices by Rs 1/litre next week.

Meanwhile, the government loss on sale of diesel has gone down by more than Re 1 to Rs7.16 per litre on the back of softening international oil rates.

Public sector oil firms Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation are losing Rs 7.16 on every litre of diesel sold in the second fortnight of March, down from Rs 8.37 a litre in the first half of the month.

Losses have also been trimmed because of the monthly increases of 50 paise a litre of diesel. Since January 2013, diesel rates have risen by a cumulative Rs 8.33.

Yogesh Mehta, PCG Advisory-Equities, Motilal Oswal Securities is of the view that it is a beginning of bigger trend change oil and gas sector including the OMCs has much further to go.

“Oil and gas has been one of the laggard sectors. As the Nifty is breaking out to fresh life highs, you are seeing sector churn away from defensives to newer avenues. That is why you are seeing several under-owned sectors now participating in this rally,” he said to ET Now.

BPCL has hit all-time high in trade today. It was at Rs 461.90, up 3.75 per cent, on the BSE. It touched an all-time high of Rs 464.50 and a low of Rs 440.95 intraday.

Investors are also showing keen interest in HPCL and IOC at the moment.

HPCL was at Rs 304.80, up 4.22 per cent, on the BSE. It touched a high of Rs 308.40 and a low of Rs 292.55 in trade today.

IOC was at Rs 271.45, up 3.15 per cent, on the BSE. It touched a high of Rs 274.20 and a low of Rs 260.50 in trade today.

Global crude oil prices are cooling down, the rupee is appreciating and government has stuck with its diesel deregulation process. All these factors are bringing back investors to these stocks, say analysts.

“By and large if you see, the diesel price de-regulation has been a big positive. The oil price is coming down, rupee appreciation, all of that plus the fact that in vote of account the government of India said that the entire subsidy amount will be paid back to the OMCs. So as a consequence, we are slightly upbeat about the OMC space, especially BPCL in that space, though it has run up enough,” said Ravi Muthukrishnan, Co-Head Research, ICICI Securities in an interview to ET Now.

The crude oil prices have been hovering near $100 per barrel on concerns of slowdown in China and as traders anticipated increase in stockpiles in the US. Lower crude oil prices and an appreciating rupee augur well for the Indian oil marketing companies.

“The crude scenario is very much in favour of the Indian economy and the companies per se. The subsidy burden has already been passed on to the upstream companies like ONGC and partially to Oil India. We are of the opinion that BPCL would be the biggest beneficiary among the OMCs, because its diesel component is much higher. If crude corrects further, it will be better for the economy and for the companies themselves. So all in all, things are good for the OMC companies. Yogesh Mehta, PCG Advisory-Equities, Motilal Oswal Securities told ET Now.

The rupee has been one of the most stable currencies of late and there are signs of it breaking the 60-61.5 on the way down. The Indian rupee was at 60.13, up 1 paise, against is its previous close.

“It now looks like that appreciation trend is in, it might actually move to 59-59.20 levels so clearly that rupee appreciation is helping OMCs. The entire reform process that the current government undertook over the last one and a half years, the key beneficiary of that reform process has been the oil and gas sector,” said Gaurav Mehta, VP, Institutional Equities, Ambit Capital.

“Going into general elections if you are seeing diesel prices being high that is quite remarkable and that is something that the market was not quite factoring in so far. It is only recently with the INR stabilising that the market is now trying to factor that in, so it is a combination of those factors,” Mehta added.