Oil Stocks Outlook for the week – 23 to 27.06.2014
(www.rupeedesk.in)
(www.rupeedesk.in)
As the crisis in Iraq continues to fuel global crude oil
prices, shares of the public sector
oil companies may further decline next week. On Thursday,
the price of India's crude oil
basket rose to a nine-month high of $111.94 a barrel in the
wake of escalating tensions in
Iraq and concerns over likely supply disruption. India
imports huge quantity of crude oil
from Iraq.
Stocks of oil marketing companies may also trade slightly
lower on Monday as a result of
a 6.5% hike in rail freight rates announced yesterday. Oil
marketing companies use
railways to transport a chunk of their petroleum products
and crude. "It is yet to be seen if
the companies would pass on the impact to users or
not," an official with one of the oil
marketing firms said.
However, the fall in the scrip of Indian Oil Corp, Bharat
Petroleum Corp Ltd and
Hindustan Petroleum Corp Ltd may be cushioned if users are
forced to bear the burden of
the freight hike.
The government has asked the oil marketing companies to
prepare contingency plans,
including diversification of their resources, for import of
crude oil in order to minimise
the impact of any geo-political instability. Stocks of
upstream companies Reliance
Industries and Cairn India may rise with the likely increase
in global crude oil prices.
State-owned exploration companies Oil and Natural Gas Corp
and Oil India are likely to
get hit due to the rise in crude prices as it would also
mean that they might have to share a
higher subsidy burden.
Stocks of capital goods companies are seen rangebound with a
positive bias next week.
However, the sector could be impacted if overall market
sentiment takes a hit on account
of the conflict in Iraq. Another factor influencing the
market will be the rise in freight
cost.
Citing concerns over the Indian Railway's financial
situation, the government yesterday
increased passenger rail fares by 14.2% and freight rates by
6.4%, effective Jun 25.
While this may negatively impact shares of cement, mining,
metal, oil and gas, fertiliser,
and logistics companies the move may translate into long
term gains for capital goodscompanies that have exposure to railway business
such as KEC International, and Larsen
& Toubro.
Although the hike in fares and freight rates will impact
inflation, the move is a positive
because it will help improve the financial situation of
Indian Railways. With the help of
policy support, timely bureaucratic decision making and
improving investor confidence,
the domestic capex cycle (which may have bottomed out in
2013) should strengthen in
the future.
