OMCs in focus; HPCL hits 52-week high

At 0953 hours, HPCL was up 2.3% at Rs 710, IOC 2% at Rs 361 and BPCL 1.6% at Rs 847 as compared to 0.33% fall in the Sensex.

Shares of oil marketing companies (OMCs) were in focus and trading higher on the bourses in otherwise subdued market after these companies announced Rs 0.64 a litre increase in petrol prices and a Rs 1.35 per litre cut in diesel prices to align the domestic rates with global price benchmarks.

At 0953 hours, Hindustan Petroleum Corporation (HPCL) was up 2.3% at Rs 710, also its 52-week high on the BSE.  Indian Oil Corporation (IOC) up 2% at Rs 361 and Bharat Petroleum Corporation (BPCL) up 1.6% at Rs 847.

The S&P BSE Sensex was down 0.37% or 99 points at 26,487.

Meanwhile, thus far in the current calendar year 2015, HPCL and BPCL have rallied 30% each, while IOC gained 9% as compared to 3.7% fall in the benchmark index.

Analysts at JP Morgan prefer downstream OMC even after the recent rally, given improving marketing margins, steady refining margins on existing refineries, and higher margins on new expansions (IOC, BPCL).

With return on equities (RoEs) likely to expand further, and earnings predictability higher than before, we are positive on the space even after the recent rally. Government policies such as diesel deregulation and Pratyaksh Hanstantarit Labh (PAHAL) are positive steps and, combined with lower crude, have made the subsidy bill more manageable, said analysts in research report dated June 10, 2015.