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Informist, Friday, Dec. 6, 2024

MUMBAI - Shares of state-owned oil refining companies are expected to extend gains next week as the fundamentals of these companies are seen to be improving. The expectation that crude oil prices will not see a sharp rise in the near term has raised hope of improvement in gross refining margins of downstream companies in India. This, coupled with expectations of upgrades on earnings estimates in the coming quarters, may also boost the sentiment towards these stocks, analysts tracking the sector said. 

"With crude price prospects increasingly looking bearish, without necessarily dragging down product margins, and the relatively lower volatility in prices ensuring lower inventory impact, we see H2FY25 (Oct-Mar) earnings on a potentially stronger path," ICICI Securities said in its research report. The broking firm also said the marketing margins of these players remain well above historical averages in Oct-Dec and the sustenance of these margins could drive material upgrades to earnings-per-share estimates. Its preferred picks are Bharat Petroleum Corp., Hindustan Petroleum Corp., and Indian Oil Corp. These three stocks gained the most this week among the oil players in India, rising 2.-4% during this period. 

When it comes to upstream companies such as Oil and Natural Gas Corp., and Oil India, Prabhudas Lilladher has a positive stance on these stocks. Though these two performed the least this week, they are expected to rise in the medium term. 

The Nifty Oil & Gas index closed higher for the second consecutive week after falling in the previous three weeks. On Friday, the index closed slightly higher at 11322.60 points, with nine out of 15 constituents in the green. The short term trend for the index is to remain in consolidation, with a positive bias, S. Devarajan, assistant vice-president of technical and derivatives at Way2Wealth Brokers, said. A breakout of 11850-11920 points would invite fresh buying and the immediate resistance will be from 11450-11590 points, he said. The support for the index is seen at 11160-11080 levels.

Investors will also closely watch the updates related to the conflict between Ukraine and Russia as well as Iran and Israel. Russia is the second-largest crude oil exporter in the world and is the largest oil supplier to India. Iran is the fourth-largest crude oil producer in the Organization of the Petroleum Exporting Countries. Any disruption in these two countries could lead to volatility in crude oil prices, and consequently may weigh on Indian oil players as well. 

A surge in crude oil could hit the profitability of oil refining companies as it is a key raw material they use. On the other hand, the same could boost the financials of oil manufacturing companies as they can earn higher revenue for the same unit of the commodity sold. 

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Following are the resistance and support levels for the sector's key stocks for next week, as per calculations based on their prices on the National Stock Exchange:

End

Reported by Anjana Therese Antony
Edited by Deepshikha Bhardwaj

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