Oil Stocks Outlook
for the week – 27.06.2016 to 01.07.2016, PSU refiners may outperform market;
crude price eyed
Stocks of state-owned oil marketing companies--Indian Oil
Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd—are likely to trade with a
positive bias next week, and are seen
outperforming the broad market which may witness volatility
in the aftermath of 'Brexit'. Capital
markets and prices of crude oil plummeted globally yesterday
as the UK citizens voted in favour of
the country exiting the European Union. The renewed weakness
in prices of crude is seen helping the
state-owned oil marketing companies given that crude oil is
their primary input. On the other hand,
analysts continue to maintain a bearish view on upstream
companies--Oil and Natural Gas Corp Ltd,
Oil India Ltd, and Cairn India Ltd.
Prices of crude oil and trend in the broad market will
influence the trend for upstream as well as
downstream oil companies over the next few sessions. Brexit
should be credit positive for the Indian
refining and marketing industry, as crude oil prices are
expected to remain subdued in the near term
due to heightened uncertainty about demand growth in the EU
region. This should translate to low
under recoveries and working capital borrowings. On the
likely trend for prices of crude oil in the next few days, While concerns about Britain remain key
price-determining factor, also weighing on crude price are demand concerns amid mixed economic data from
major economies and possibility of better supply from Nigeria following truce.
Data released earlier this week showed a less-than-expected
weekly decline in US crude stockpiles,
leading to renewed concern about oversupply. A slump in
global and domestic equities, coupled with
strength in the US dollar against the euro, may also weigh
on prices of crude oil. A stronger dollar
will also hit downstream companies as they primarily depend
on imported crude, while providing
some support to oil-producing companies. While the major
impact of the UK's decision to leave the
EU was absorbed yesterday, Indian equity markets could still
continue to be in a correction mode
over the next couple of weeks. There may be some correction
in downstream stocks if the market
shows weakness over the next few sessions. However, the
stocks look fundamentally strong and
even with any such correction; they are likely to outperform
the market.
Apart from the impact of 'Brexit', what is also likely to
add to the volatility next week is that traders will roll over positions to the July derivates contracts
ahead of the expiry of June series on Thursday.
