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Traders may see value in the stocks of oil marketing companies in the week ahead after having declined significantly over the last two weeks, though the trend will entirely be guided by the movement of the rupee against the dollar. The rupee recovered sharply over the last three trading sessions after touching an all time low of 58.98 to a dollar. The rupee ended 1% lower against the dollar this week, at 57.51. It depreciated 1% in the previous week and 2% in the week before that.
The state-owned refining and marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd--import almost 80% of their crude oil requirement, and a decline in the rupee makes the commodity costlier for them. The crude oil prices, however, have remained stable around $101 for a barrel, providing some relief to the companies and their stock.
The broad market is seen firm next week but the Reserve Bank of India's mid-quarter monetary policy review on Monday would be a key factor in determining the trend. If the market remains in a positive territory, the stocks of oil marketing companies will get some support. Of the three, BPCL is favoured as the company has better fundamentals and a lucrative upstream portfolio. BPCL has been outperforming its peers due to superior operational performance as well as higher quality of capex.
Reliance Industries stocks will also be in focus next week as Canadian partner Niko Resources Ltd is going to soon announce revised reserve estimates for KG-D6 block. Yesterday Niko said that it expects significant upsides in the proven and probable reserves in the block operated by Reliance Industries. Also, the government is expected to take a decision on gas pricing by the end of this month. Niko said it expects the price for KG-D6 gas to more than double from the current level of $4.2 per mBtu. Meanwhile, the benchmark Singapore complex gross refining margin increased 23% month-on-month in May to $6.3/bbl led by improvement in crack spread across products except fuel oil. This will benefit Reliance Industries--the country's second largest crude refiner as it usually earns a premium over the Singapore benchmark.
