Oil Stocks Outlook
for the week – 19 to 23.09.2016
Shares of retailers seen
down on steep valuations
Stocks of state-owned oil retailers are expected to correct
next week as sharp gains in the last few
months have made their valuations expensive. Stocks of
Indian Oil Corp, which has risen 45% in the
last six months, is seen neutral-to-negative on charts.
Indian Oil shares yesterday ended 570.20
rupees on the National Stock Exchange. However, over a
longer term, the stock is still the preferred
pick for most analysts. They expect India's largest oil retailer
to be the biggest beneficiary of
improvement in demand for petroleum products.
The company offers advantage of scale in refining,
petrochemical and marketing business, and its
new projects will improve the efficiency. Among the
explorers, Oil and Natural Gas Corp is the
preferred pick as most analysts believe that the valuations
of the stock are cheap. Even if crude oil
prices were to decline, it would not impact the stock, which
factors in realisations at a very low price
of crude oil. At 1915 IST, the November futures contract of
Brent crude oil was at $45.66 per barrel
on the Intercontinental Exchange in Europe, down nearly 2%.
Reliance has been trading below 1150 rupees since January
2010 and the success of Reliance Jio
Infocomm will be crucial for a breakout from this level. The
fate of Cairn India stock is linked to
fundamental analyst mentioned earlier said. Apart from crude
oil prices, fluctuation in the dollarrupee
exchange rate is also likely to affect shares of oil
companies. If the dollar strengthens against
the rupee, it will hit refining companies and benefit
upstream players. A weak dollar, on other hand,
is
advantageous to downstream companies.