OMCs collapse 20% in 3 months: Is the sharp drop a ‘value buy’ or a ‘value trap’?

Well, we spoke to a host of experts who track the oil and gas stocks. Most believe that the dynamics are very different. On the one hand, for upstream companies involved in exploration and production, there are definitive benefits from high crude prices; the surge in crude poses a key challenge for downstream players. 

For refiners and fuel retailers, this directly leads to a surge in their input costs and a margin squeeze unlike upstream oil exploration companies.

OMC stocks clock sharp decline

This divergence is well borne out in the share price movement. A 3-month price movement indicates that some of the key oil marketing companies have declined as much as 20% in 3 months. 

BPCL share price has plummeted 21.17% in 3 months.

Indian Oil Corporation is down nearly 20% in the same period.

HPCL share price has also declined nearly 17% in 3 months. 

The extent of the damage can be gauged when one compares this with the benchmark. The Nifty has fallen about 7% in 3 months, and the Sensex is down 9% in the same period.

What’s the right strategy for OMCs? 

Therefore, given the extent of correction, are OMCs a value Buy at this juncture or more of a value trap? 

Deven R Choksey, Founder and MD of DRChoksey Finserv advises that investors can “buy OMCs when you find a distinct prospect of crude oil going back to $60-70 / bbl.”

According to him, “one can be optimistic in placing an argument that sooner than later oil prices will start a downward journey and the Iran-USA war will head for a complete halt. Till it happens, if an investor wants to buy impacted financials, a damaged balance sheet of OMC, that’s the price they pay for buying these companies.”

Siddharth Khemka, Head of Research (Wealth Management) at Motilal Oswal Financial Services pointed out that, “It is very difficult to give a concrete view on the oil marketing companies amid the volatile global environment. Till the time you have elevated crude oil prices, the sentiment at least remains negative. Q4 results have also not been great. If crude prices remain elevated and if government does not pass on the impact through price hikes, it could be challenging.”

Gagan Dixit, Senior Vice President at Elara Capital pointed out that the current integrated losses on gasoline and diesel is Rs 9/litre (first fortnight of May 2026 data) for Oil Marketing Companies. According to his estimates, “this can be managed fiscally by a further cut in excise duty, if the government wants.”

However he added that the “Call on OMCs is very dependent on when the war will be over. If the view is that war will be over in the next 3 months, then OMCs offer good buying opportunities.”

Sumit Pokharna, VP – Fundamental Research at Kotak Securities, highlighted that “With lack of earnings visibility, are investors going to be interested? Only if any policy changes happen on the positive side for them or if the crude prices come down and currency comes under control.”

Though he believes that the “valuation, with the recent correction in the stock price, has improved definitely.” He expects to “see more visibility coming once either they get a better realisation or the raw material cost comes or the rupee depreciates. In that case, I think OMCs can give an attractive proposition depending on how much revenue visibility is on offer.”

Dixit added that this is because, “OMCs can break even gasoline and diesel margin at integrated level (refining plus marketing) at $90/bbl crude oil level. Secondly, if crude oil price decline even below $80/bbl after 12 months of war, OMCs would be allowed to earn a supernormal margin to recover past losses, as observed after the Russia-Ukraine war.”

What happens to OMCs if war continues beyond 3 months

Most strategies for the OMC stocks are built with the assumption that the war will end in 3 months. The billion-dollar question is, ‘What if the war continues beyond that’?

Dixit of Elara Capital believes that “if war continues beyond 3 months from now, then OMC performance will depend on government actions like allowing them to raise retail prices, because then there is a high possibility that crude oil prices will move above $125/bbl under a prolonged war scenario.”

Motilal Oswal’s Khemka added that “It is very difficult to predict geopolitics and what the government steps would be. I think the sentiment, as well as the view on the OMC stocks, would remain neutral to negative. Until there is clarity, it is better to look at other sectors for value bargains.”

“The last time when crude rates have been this elevated, the Govt introduced some kind of  surcharge or tax on the upstream oil companies, and then they absorbed whatever losses or subsidy bill that they had decided on. That is not being done so far.”

He believes that any hike in the retail prices is sentimentally positive for the stocks. 

OMCs: Tug of war between refining margins and marketing margins

For OMCs, the implications of elevated crude prices are manifold. 

Pokharna of Kotak Securities added that “the downstream, which includes BPCL and other refineries, refining margin has been very attractive, but the marketing margin has been lower. In Q4, the integrated margin – refining plus marketing margin – has been quite healthy. For diesel, it is around $14.70 per barrel, and for petrol, it’s around $13.40 per barrel. They are pretty healthy numbers. But coming to this quarter, the current quarter, Q1 FY27, this has fallen down drastically.”

Because of the sharp surge in the crude oil prices, “the refining margins are at an elevated level. But marketing margins have fallen down drastically. Because the crack spread on the diesel and petrol has shot up. So in a nutshell, in Q1 FY27, these companies are not in a healthy state as of now. No, I will not say that they are under deep pressure, but yes, they are not enjoying the expected margins,” he added.

According to him, “the other problem is the LPG sales or the margins on LPG. That is another tremendous pressure. So in fact, the losses have increased from last quarter to this quarter till date.”

The war needs to end for any meaningful strategy ahead

Explaining the catch-22 situation, Siddharth Khemka explained how “even for long-term investors, we do not know how much pressure or pain may continue or for how long. If crude remains elevated at current levels, Q1 numbers are going to get impacted.”

Pokharna added that, “part of the story is that this geopolitical situation needs to improve. The war needs to stop and we need to continuously get oil supply, LPG and LNG supply. If this is not happening, definitely 85% of consumption is imported. India’s fuel energy requirement, fossil fuel requirement, is made from imports, almost 85%.”

What makes the situation even more complicated is this coupled with the supply-side concerns, particularly on the logistic side. I think the situation is quite grave, and we need to wait and watch and hope that things improve as soon as possible.”

Conclusion

Most analysts are adopting a wait-and-watch approach and believe that any meaningful upside potential can be discussed only when there is visibility on how long the war will continue.

If you analyse the situation, Kotak’s Pokharna explained that “the selling prices are under pressure because they have not been changed. Raw material costs have surged like anything. What would make anybody interested in buying these stocks?”

According to him, “revenue visibility remains a big challenge.” Additionally, there is also the threat from EVs and the working capital is going up. As a result, debt is also increasing and the oil marketing companies are in capex mode.

All these factors need to be considered in unison before investing in these stocks.