ONGC, GAIL our top bets in OMCs: Tirthankar Patnaik, Religare Capital Markets

In a chat with ET Now, BP Singh, Executive Director & CIO-Equities of Pramerica Mutual Fund shares his thoughts on OMCs. Excerpts:

ET Now: The interest seems to have fallen over the oil and marketing companies or so it seems. Is that something you are actively pushing with your clients or are you saying that they should wait a bit longer?

Tirthankar Patnaik: The big concern on oil names is that there is going to be a lot of paper coming in. The last time ONGC did an OFS was actually at a premium, but there were hardly any buyers. LIC had to come in and shore up the company at that time.

ONGC is trading at roughly 400 this time if there is a discount, so clients are essentially a little worried that they would want to come in after the paper supply has gone through.

From a top-down perspective, however, the way we see it is that gas pricing has been deferred for a while, but gas hike is going to come through. Overall subsidy numbers are going to get rationalised. Diesel is going to get market linked over a couple of months and going forward, the next leg would be LPG and SKO.

These are trends that are likely to be macro and therefore they are going to be positive for the sector as a whole. Thus, ONGC is something that we continue to like. Amongst the oil marketing companies, our analyst feels that the valuation premium between BP and HP has ex panded meaningfully - it stands at roughly 40 per cent at this point.

Hence, if one wants to have a fair trade, then it should be essentially HP or BP. But overall, we prefer upstream ONGC as well. We like GAIL also and we are overweight on energy in our model portfolio, more than 250-300 bps over the Nifty weightage.