Oil Stocks Outlook for the week – 20 to 22.10.2014

Oil Stocks Outlook for the week – 20 to 22.10.2014

Stocks of the state-owned oil marketing companies are seen trading in a range in a
truncated trading week starting Monday but the mood is broadly seen positive as
crude prices continue to hit new lows. Also, the government is expected to
announce a decision on diesel prices ahead of Diwali, on Thursday, which could
have a sentimental bearing on the stocks of Indian Oil Corp Ltd, Bharat Petroleum
Corp Ltd and Hindustan Petroleum Corp Ltd. The state-owned oil marketing
companies are now making profits of over 3.5 rupees per ltr on retail diesel sale. It
is widely expected that the companies will be asked to reduce the price of diesel by
that extent before Thursday.

However, since the move is not going to have a negative impact on the finances of
the three companies, it may not affect their stock prices adversely. Instead, most
analysts see more downside in crude prices, even after the Indian basket of the
commodity hit a four-year low this week. The price of India's crude oil basket hit
$82.83 a barrel on Thursday and supplies in the international market remain
buoyant indicating further downside. This means that the three companies will start
making additional gains on the fuel within days if the price cut is announced.

However, a bigger positive would be if the government officially deregulates the
pricing of the fuel. This could fuel the three stocks significantly from the current
levels, also because they have pared some gains in recent trading sessions. Results
of the recently concluded elections for the assemblies of Maharashtra and Haryana,
to be announced on Sunday, will also hold some sway over these stocks. Reliance
Industries Ltd counter will take cues from the broad market trend as, the decision
on gas pricing being some time away, there are no near term triggers.

For the broad market, a decisive verdict in favour of the Bharatiya Janata Party is
likely to cheer the bulls and may lift sentiments to fuel another rally. However,
benchmark share indices are expected to move in a narrow range later next week.
Markets will be closed on Thursday and Friday for Diwali, but the market will be open for a short time on Thursday for muhurat trading.