The growing uncertainty around the Strait of Hormuz and the resultant volatility in the crude prices has put the radar directly on India’s oil and gas sector. Rising tension across West Asia and disruptions around the Strait of Hormuz have started to influence company earnings as well. 

The global brokerage Jefferies has come out with its view on the sector, identifying select stocks where it sees meaningful upside potential.

According to the brokerage report, the sector is entering a phase where earnings visibility is getting reshaped by global events, particularly fluctuations in crude oil prices and supply disruptions. While some companies stand to benefit from higher crude prices, others may face pressure due to rising input costs and weaker margins.

Jefferies ‘Buy’ ratings: Oil and gas stocks to watch

Jefferies has maintained a ‘Buy’ rating on a basket of oil and gas companies. The brokerage house has given a ‘Buy’ rating to these stocks.

As per the brokerage house, BPCL has a target price of Rs 445, implying an upside of about 51.4% from current levels. Reliance Industries has a target of Rs 1,755, indicating nearly 33.6% upside potential from current levels. 

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For IOCL, Jefferies has set a target price of Rs 185. This translates to a potential gain of around 31.2% from current levels.

Among gas and distribution players, Indraprastha Gas (IGL) has a target of Rs 205, pointing to a 26.5% upside, while GAIL (India) has a target price of Rs 185, indicating around 20.9% upside potential . Oil And Natural Gas Corporation (ONGC) has a target of Rs 325, implying a relatively lower upside potential of about 13.2%.

The brokerage has highlighted that valuations in some of these stocks remain attractive. “Reliance and BPCL trade > 1 SD below LT average – making risk reward favourable,” it noted.

Crude prices and the Strait of Hormuz -The key assumption

A major assumption in Jefferies analysis is the timeline of disruptions in the Strait of Hormuz, a critical global oil supply route. 

According to the Jefferies report, “We assumed the closure of the Strait of Hormuz to last till end-April, followed by normalisation of traffic.”

ONGC gains, but others face earnings cuts

The report noted that upstream companies like ONGC are better placed in the current environment. 

“ONGC is a key beneficiary: We raise ONGC’s consolidated EPS 19% as we move to$ 85/bbl Brent price for FY27,” the brokerage said.

This is because higher crude prices directly improve realisations for oil producers. In addition, the absence of government-imposed price caps allows ONGC to benefit more fully from elevated prices.

However, the situation is different for other players. 

According to the brokerage report, “Reliance Industries sees (potential) 6% EPS cut on lower O2C profitability.”

Gas companies and OMCs under pressure

The impact is even more visible in gas-related businesses. “GAIL, Petronet LNG see 14-18% earnings cut on ME LNG outage,” the report noted, referring to disruptions in liquefied natural gas (LNG) supplies from the Middle East.

City gas distribution companies are also seeing mixed trends. “MAHGL sees the lowest earnings cut among CGDs as it takes price hikes,” the brokerage said, while adding that companies like IGL may face margin pressure due to limited price increases.

The biggest impact, however, is on Oil Marketing Companies (OMCs), which include BPCL and IOCL. “OMCs take the bulk of the impact,” Jefferies noted, highlighting rising marketing losses in fuels like petrol, diesel and aviation fuel. Despite this, valuation comfort is driving the positive stance on select stocks.

What it means for investors

Companies linked to crude production may benefit from rising prices, while those dependent on refining, marketing or gas supply could face earnings pressure in the near term.

According to the brokerage report, the next few months will be crucial, as the sector adjusts to both global supply disruptions and domestic pricing dynamics. 

Disclaimer: Investment targets and potential returns discussed here are based on analysis by Jefferies and do not constitute an offer or solicitation by this publication. Given the volatility of the oil and gas sector and the influence of geopolitical events, readers should consult a SEBI-registered investment advisor before making any financial decisions. These projections are informational and subject to market risks, including currency fluctuations and regulatory changes.

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