Just days after JP Morgan welcomed the government’s decision to cut basic excise duty on petrol and diesel by Rs 2 per litre, saying that it will benefit the Oil marketing companies, Harsha Upadhyaya of Kotak Mutual Fund says that the sector poses a very lucrative opportunity for wealth creation. In an interview to CNBC TV18, Harsha Upadhyaya, Head – Equity investments for Kotak Mutual Fund said, “We are positive on Oil and gas as we believe that the refining margins are still very strong and there is a steady volume growth in gas utilities. There is huge amount on wealth creation that can happen even going forward.”
Elaborating on the sector, the expert said, “ This is an area where historically return ratios have been very high. Supportive government policy in terms of using cleaner and greener fuel will also be in focus.” In a report earlier this week, JP Morgan said that Indian Oil Corporation (IOC) is its top pick from the space. Indian Oil shares have returned more than 25% in the year so far. According to JPMorgan, the excise duty cut will help the oil marketing companies to to recent the recent underperformance. JPMorgan says that margins are likely to remain stable in the coming quarters.
After Dharmendra Pradhan government’s intention to not check the prices last month, Morgan Stanley reiterated its preference for the OMC (Oil Marketing Companies) space in India. Morgan Stanley has a buy on Indian Oil Corporation with a target price of Rs 571. Morgan Stanley said that all the oil marketing companies have registered strong gross refining margins in the quarter so far. Going forward, the global firm believes that the OMCs will report a core profit growth of 20-25% quarter on quarter.
Moving on to the mutual fund inflows, Harsha Upadhyaya said that September flows were slightly weaker. “September was slightly weaker on overall industry flows. But it’s not really something to worry about. Maybe the investors felt jittery after Nifty touched 10,000, or the short term volatility,” he said. However, he points out that SIP inflows continue to gain momentum. “The SIP numbers still continue to be strong. As at end of August MF SIP book stood at Rs 5,200 crore. My guess is it should be around Rs 5,400 crore in September end,” he told the channel.
The expert said that he has not made any major changes to the overall portfolio. “We have participated in new IPOs from some other sectors, but apart from that most of the old portfolio construct still remains the same,” Harsha Upadhyaya said in the same interview.