ONGC, Oil India surge 10%; gain up to 41% in 6 months on high oil prices

Earnings outlook for upstream PSUs has improved considerably given the recent rise in crude oil prices above $90/bbl mark and expectation of a further steep hike in domestic gas price over H1-H2FY23

Shares of state-owned oil exploration & production companies – Oil Natural Gas Corporation (ONGC) and Oil India – rallied up to 10 per cent on the BSE in Wednesday’s intra-day trade as oil prices surged to their highest levels since 2014.

Brent crude oil prices extended gains as the conflict in Ukraine escalated, fanning fears of lower supply from the top oil exporter. Western countries have also slapped fresh sanctions on Russia in response to the invasion of Ukraine, and Russian President Vladimir Putin responded by putting his country's nuclear deterrent on a high alert.

Brent futures rose nearly 5 per cent on Wednesday to top $110 a barrel-mark, their highest since 2014, as a global agreement to release crude reserves also failed to calm fears about supply disruptions from Russia's invasion of Ukraine, news agency Reuters reported.

Among individual stocks, Oil India surged 9.8 per cent to Rs 245, while ONGC gained 4.6 per cent at Rs 168.05 on the BSE in intra-day. In comparison, the S&P BSE Sensex was down 1 per cent at 55,649 at 09:30 am. In the past six months, ONGC and Oil India have outperformed the market, having rallied 41 per cent and 30 per cent, respectively, as against a 3.8 per cent decline in the benchmark index.

Earnings outlook for upstream PSUs has improved considerably given the recent rise in crude oil prices at above $90/bbl mark and expectation of a further steep hike in domestic gas price over H1-H2FY23 on current gas price of $2.9/mmBtu. High oil & gas prices would boost overall profitability of ONGC and OIL. However, oil and gas production are expected to recover gradually with majority of the growth being back-ended (i.e. by FY2024E-FY2025E).

"The recent sharp surge in crude oil prices and expectation of further steep hike in domestic gas prices from April 2022 would drive a 40 per cent CAGR in Oil India’s standalone profit after tax (PAT) over FY2021-FY2024E and improve RoE to 12.5 per cent (versus only 5.4 per cent in FY2021). Moreover, the recent stake increase in Numaligarh Refinery (NRL) could create long-term value for Oil India," brokerage firm Sharekhan said. It maintains a 'Buy' rating on Oil India with a revised SoTP-based price target of Rs 290.

Technical outlook

ONGC

Upside Potential: 5%

Support: Rs 155

ONGC has been a clear outperformer since the stock broke above its 20-WMA in late November 2020. The stock has since zoomed over 145 per cent from levels of Rs 71.70. Post that, the stock has consistently (four occasions) found support around the 20-WMA amid market corrections.

Similar is the current case, last week the stock dipped to Rs 156, which is where the present 20-WMA stands (Rs 155.50). The overall bias is likely to remain bullish as long as the stock holds above Rs 155 on a closing basis. On the upside, the stock can re-test its recent high of Rs 176-odd levels.

The key momentum oscillators on the daily charts are also in favour of the bulls, with a positive crossover seen on the Directional Index (DI) and Stochastic Slow. 

Oil India

Upside Potential: 9.8%

Resistance: Rs 246-250 

Oil India is currently on the verge of giving a fresh breakout on the daily charts. The stock is currently trading above the higher-end of the Bollinger Band on the daily charts. (A close above the same (Rs 239) can trigger fresh momentum at the counter. 

The key momentum oscillators are also in favour of the bullish bias, with DI and Stochastic Slow supporting the up move, and the MACD (Moving Average Convergence Divergence) on the verge of a posistive crossover on the daily charts.

However, the weekly charts indicate some resistance around the Rs 246-250 trading range, above which the stock can potentially rally up to Rs 268. On the flip side, downside, the near support for the stock lies around Rs 225-odd level.

(With inputs from Rex Cano)