Oil Stocks Outlook for the week (03.09.2012-07.09.2012)
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rupeedesk
Sep 1, 2012, 3:53:37 AM9/1/12
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Stocks of state-owned oil marketing companies are seen slightly up next week, while Reliance Industries is seen rangebound with a positive bias. Stocks of Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are seen recovering after falling sharply this week. But the extent of recovery will depend on the market, which is expected to take cues from US Federal Reserve Chairman Ben Bernanke's speech today at Jackson Hole.
Though crude oil prices eased slightly this week, with the Indian basket down almost $2 from last Friday to around $111 a barrel on Thursday, the situation of state-owned refiners remains critical as revenue losses on subsidised fuels continue to mount.
We remain cautious on concerns of burgeoning oil subsidy burden, due to higher oil prices and INR (rupee) depreciation.With chances of any hike in prices of diesel, kerosene, and cooking gas bleak, the companies may continue so suffer revenue losses throughout the year and may have to borrow heavily from the market at high costs to meet their expenses. Usually, the government compensates the retailers by the end of a financial year but the heavy short-term borrowing results in high interest costs and reduces profitability. Morgan Stanley added that it prefers BPCL among the three companies because of its global upstream portfolio which has good prospects.
The recent report by the Comptroller and Auditor General criticising ONGC for misreporting its exploration successes and inability to run an efficient exploration programme may continue to weigh on the company's stock. Following the CAG report, HSBC Global Research maintained its neutral rating on the stock with a price target of 300 rupees saying "the overall conclusions drawn by the CAG are mixed in nature--mostly justified but a few are over-critical."
Reliance Industries stocks are seen rangebound in the near term because of the expected weakness in global refining sector. But because of the decline in stock for two consecutive weeks, the bias is seen positive on value buying.
Though crude oil prices eased slightly this week, with the Indian basket down almost $2 from last Friday to around $111 a barrel on Thursday, the situation of state-owned refiners remains critical as revenue losses on subsidised fuels continue to mount.
We remain cautious on concerns of burgeoning oil subsidy burden, due to higher oil prices and INR (rupee) depreciation.With chances of any hike in prices of diesel, kerosene, and cooking gas bleak, the companies may continue so suffer revenue losses throughout the year and may have to borrow heavily from the market at high costs to meet their expenses. Usually, the government compensates the retailers by the end of a financial year but the heavy short-term borrowing results in high interest costs and reduces profitability. Morgan Stanley added that it prefers BPCL among the three companies because of its global upstream portfolio which has good prospects.
The recent report by the Comptroller and Auditor General criticising ONGC for misreporting its exploration successes and inability to run an efficient exploration programme may continue to weigh on the company's stock. Following the CAG report, HSBC Global Research maintained its neutral rating on the stock with a price target of 300 rupees saying "the overall conclusions drawn by the CAG are mixed in nature--mostly justified but a few are over-critical."
Reliance Industries stocks are seen rangebound in the near term because of the expected weakness in global refining sector. But because of the decline in stock for two consecutive weeks, the bias is seen positive on value buying.
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