As JPMorgan welcomes excise duty cut, here is its top pick from oil marketing companies

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Published: October 4, 2017 1:23:20 PM

JPMorgan cheers the government's move to cut excise duty, as it will help the oil marketing companies to reverse recent under performance in the stock markets.

JPMorgan picks IOC from the OMC space, after the government announced an excise duty cut. (Image:Reuters) 

After the government cut basic excise duty on petrol and diesel by Rs 2 per litre in a move to provide some respite to the people from the inflationary impact, JP Morgan welcomed the move saying that the move will help reverse the recent underperformance of Oil Marketing Companies. The three oil marketing behemoths gained more than 1% on Wednesday morning, as investors cheered the move. BPCL shares were trading at Rs 484.60, up by more than 1.2%, while HPCL shares gained 2% and were trading at Rs 443.15 this morning. IOC shares were trading at Rs 409.85, up by more than 0.8%.

In its report, 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. Notably, the shared have corrected by more than 9% in the last one month. 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.

The recent price cut augurs well for the OMCs as well as the common man, as the government looks to cushion the impact of rising international prices of crude petroleum oil and petrol and diesel on Retail Sale Prices of petrol and diesel. Earlier last week, FE Online had reported how petrol and diesel prices have continued to rise despite oil minister Dharmendra Pradhan having said two weeks ago that the retail fuel prices would ease out in few days.

Despite the growing clamour for government intervention to bring down fuel prices, oil minister Dharmendra Pradhan had categorically refused to interfere in day-to-day functioning of oil marketing companies. The government’s latest move lowers the prices of retail fuel without it having any impact on the oil marketing companies, but rather the government itself bearing the revenue loss of Rs 13,000 crore for the rest of the current financial year 2017-18.

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. Notably, Morgan Stanley remains bullish on BPCL too, with a target of Rs 597.

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