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    Investors are back; rerating may be on cards for oil & gas stocks

    Synopsis

    The April-June results of oil marketing companies came as a positive surprise to many analysts with profits getting boosted.

    ET Bureau
    MUMBAI: Is the oil and gas sector set for a rerating on Dalal Street? Investors are nibbling at shares of public sector oil companies such as Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) as drop in global crude prices and staggered increases in diesel prices have raised hopes of these companies erasing a chunk of losses.

    Brent crude oil has declined to its lowest level in more than a year and is hovering around $102 a barrel despite fears of disruptions from violence in Iraq and Russia-Ukraine tensions. “Oil and gas stocks can see further re-rating if crude oil prices fall from current levels,” said Dipen Shah, head of private client group research at Kotak Securities. “We are selectively positive.”

    The April-June results of oil marketing companies came as a positive surprise to many analysts with profits getting boosted by lower under-recoveries, higher marketing margins and foreign exchange (forex) gains on the reversal of currency swaps.

    Even if crude oil prices remain around same levels and the rupee stays stable, diesel price deregulation would be just two or three months away, said analysts. Currently, diesel under-recoveries have fallen to about Rs 1/litre from Rs 4.4/litre in May 2014.

    “We remain positive on the sector as diesel decontrol would result in 46% decline in gross under-recoveries during FY14-16,” said Amit Rustagi, oil and gas analyst, at Antique Stock Broking. “Implementation of direct benefit transfer for LPG and kerosene can lower cooking fuel under-recoveries substantially,” he said. Rustagi is bullish on public sector oil marketing companies (OMCs) — BPCL, HPCL and IOC.

    OMCs sell diesel, domestic LPG, and kerosene at government-controlled rates which are below market price. losses they incur are made good through cash subsidy from the government and subsidy sharing by oil exploration companies such as ONGC and OIL. Analysts said these stocks would also be on investors’ radar if subsidies are eased out.



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    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

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