Oil Stocks Outlook for the week - 19 to 23.May.2014
(www.rupeedesk.in)
(www.rupeedesk.in)
Stocks
of oil companies may gain next week, but little upside from current
levels
is seen, though a resounding win for the National Democratic Alliance in
the
Lok Sabha elections is likely to keep Reliance Industries stocks
buoyant.
We believe that a strong mandate for the NDA and Bharatiya Janata
Party
will help the new government push key reforms and eliminate subsidies
that
will improve financial health of the state-owned oil marketing companies--
Indian
Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum
Corp
Ltd.
A
clear majority would rather encourage the government to fast forward
deregulation
process
through more frequent hikes (fortnightly or weekly). It can
be
more or less implied that de-regulation is for sure. The stocks would remain
on a
high in the near term, at least until the new government outlines it policies
after
taking charge. The rupee-dollar movement will be key for the near term
trend
in the stocks of the three oil marketing companies. The Indian currency is
expected
to remain firm, buoyed by the NDA win that will provide further
upside
to IOC, BPCL and HPCL.
For
Reliance, the Street is more hopeful of an improvement in environment as
the
company has been at loggerheads with the United Progressive Alliance
government
on several issues. Traders believe that the BJP government will try
to
mend fences with corporates and fast-track dispute resolution with Reliance
Industries
in a bid to improve investment environment for the upstream oil
industry.
The government is also likely to go ahead with the gas price hike and
also
provide a roadmap towards free pricing, which will be a big positive for
the
company as well as the sector.
NDA
government is expected to pay heed to concerns from E&P (exploration
and
production) players for a roadmap towards free pricing of gas. Oil and
Natural
Gas Corp too will benefit from reforms in the downstream sector as its
subsidy
burden will decline, though a timeline for that is yet not clear.
However,
upstream reforms will keep the counter upbeat as ONGC will be the
biggest beneficiary of higher gas prices.