BSE Oil & Gas index surges over 3%; ONGC, BPCL, HPCL, GAIL rally up to 7%

In the past six months, the oil & gas index has underperformed the market by falling 18 per cent, as against a 9.5 per cent decline in BSE Sensex.

The BSE Oil & Gas index surged over 3 per cent in Friday’s intra-day trade amid heavy volumes backed by strong rally in Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation (HPCL), Gail (India) and Bharat Petroleum Corporation. These stocks have soared between 5 per cent and 7 per cent. Shares of Indian Oil Corporation (IOC) and Oil India were 3 per cent and 2 per cent, respectively.

 

As of 02:40 PM; the BSE Oil & Gas index, the top gainer among sectoral indices, was up 3.2 per cent, as compared to 0.69 per cent rise in the BSE Sensex. However, in past six months, the oil & gas index has underperformed the market by falling 18 per cent, as against 9.5 per cent decline in the benchmark index.

 

 

The Indian Parliament recently passed the Oilfields (Regulation and Development) Bill, 2024 that provides policy stability to investors, decriminalises provisions and promotes ease of doing business.

 

Oil and gas companies will not face new taxes like windfall profits tax following the implementation of a new law that guarantees fiscal stability, PTI reported quoting Petroleum Minister Hardeep Singh Puri. Investors looking to invest in finding and producing oil and gas want fiscal stability. The new taxes that seeks to take away gains made when prices are high, without compensating for low or no margins when rates are low, are often a deterrent, the report suggested. 

 

Brazil's Petrobras is in discussion with state-owned Oil India for exploring the Andaman basins, while ONGC is engaged with majors like ExxonMobil and Equinor for collaboration in deepwater exploration.

 

Shares of ONGC surged 5 per cent to ₹247.85 on back of two-fold jump in average trading volumes. HPCL share price soared 7 per cent to ₹359, surging 10 per cent in two trading days.

 

Analysts maintain 'buy' on ONGC and Oil India given robust production growth outlook in the next one to three years (~12 per cent for ONGC and ~25 per cent for Oil India) and expectation that Brent prices are likely to be supported at ~$70/barrel.

 

Analysts at Elara Capital reiterate 'Buy' rating on ONGC with a sum-of-the-parts (SOTP)-based target price of ₹327. The brokerage firm expects ~5 per cent oil and gas production compound annual growth rate (CAGR) during FY24-28 and higher natural gas realization from new wells and fields of nominated blocks.  

 

However, the brokerage firm cut consolidated earnings per share (EPS) by 19 per cent for FY26 and by 11 per cent for FY27, due to reduced profitability estimates of subsidiaries and lower international crude oil prices. Analysts believe valuation multiple will further increase with the rise in oil and gas production of Krishna Godavari (KG) and Mumbai High (MH) fields.

 

ONGC demonstrated consistent volume growth, supported by the ramp-up of production at 98/2 unit, despite muted financial performance. Future prospects are bolstered by its collaboration with BP, which is expected to drive further production expansion. Besides, the absence of Special Additional Excise Duty (SAED) provides a significant boost to profitability. The management’s strategic focus on deepening its presence across the oil-to-chemicals value chain further strengthens long-term growth prospects, according to Geojit Financial Services.

 

As regards to HPCL, analysts at Elara Capital said the company would have to earn over ₹3,000 per tonne integrated margin to fund its aggressive capex that would help double its profit in the next five years. This was validated in Q3FY25 and whenever crude oil prices have been at below $80/bbl, the brokerage firm said in result update. Analysts expect HPCL and other oil marketing companies (OMCs) to be allowed to earn above-historical integrated margin to finance their massive capex of ₹6 trillion in the next five years (energy transition capex comprises ~30 per cent).