HDFC Securities bullish on oil marketing companies as government keeps hands off

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Updated: September 29, 2017 3:07:27 PM

HDFC Securities said on Friday it is bullish on the future prospects of state-run oil marketing companies due to the Narendra Modi government’s tendency of not interfering in their day-to-day functioning.

HDFC Securities said on Friday it is bullish on the future prospects of state-run oil marketing companies due to the Narendra Modi government’s tendency of not interfering in their day-to-day functioning. (Image: Reuters)

HDFC Securities said on Friday it is bullish on the future prospects of state-run oil marketing companies due to the Narendra Modi government’s tendency of not interfering in their day-to-day functioning, even as their near-term returns will likely remain muted on account of high capital expenditure.

“It is unlikely to see any government intervention in the functioning of OMCs… The OMCs look like businesses that can keep growing, all of them are 2X, 3X, and their balance sheets have healed,” HDFC Securities Research Head Dipen Sheth said in an interview to ET Now.

While Dipen Sheth said that the OMCs are on the cusp of large capital expenditure, which will expand balance sheets and bring down return ratio until they become productive, he remained bullish, saying that the government is unlikely to intervene. “It is unlikely to see any Govt intervention as of now in the functioning of the OMCs,” he said.

Earlier this month, Oil Minister Dharmendra Pradhan categorically denied news reports of a possible government intervention to keep the retail fuel prices under check. He said that the government had “no business to interfere in the day-to-day functioning of the oil marketing companies”.

On the recent surge in crude oil price that has led to decline in shares of the OMCs, Dipen Sheth said the price is not going to shoot beyond $60 a barrel. “We are in a multiple-decade structural bull market… Markets are at a weak point, crude oil price is going up, but I do not think crude would be shooting beyond the sustainability of $60 a barrel,” Dipen Sheth said.

Of late, on the back of surging crude oil prices, shares of BPCL, HPCL and Indian Oil have fallen 11-12% in September. International Crude Oil prices are surging, spurred by rising tension around northern Iraq following the autonomous Kurdistan region’s vote in favour of independence in a referendum, as a result of which crude oil price in India is going up. The crude oil price surged $6.18 at $56.50 on September 29 since the beginning of the month.

Sensex and Nifty opened higher on Friday after a choppy trade through the week. BSE Sensex gained 85 points to open at 31,367.25 points and NSE Nifty added 45 points to start at 9,814.3 points. Within minutes of trading, the benchmark Sensex rose 170 points to hit the day’s high of 31,452.77 points while the broader Nifty 50 jumped 58 points to mark the day’s high at 9,827.35 points.

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