Bulls tighten grip over OMCs; IOC, BPCL, HPCL hit 6-9% upper circuit: Here’s why
The capital infusion by the government comes in support of investments in energy transition projects by the OMCs. The rally picked up by OMC stocks also comes after the Organistation of Petroleum Exporting Countries and its allies (OPEC+) on Thursday signaled it will stick with oil production cutbacks this quarter, as the group seeks to avert a surplus amid a weak global demand.
OMC Stocks Today
Shares of Indian Oil Corporation (IOC) were locked at over nine per cent upper circuit to hit its fresh 52-week high of ₹165.55 apiece on the BSE. Similarly, shares of Hindustan Petroleum Corporation Limited (HPCL) surged significantly and were locked at five per cent upper circuit to hit a 52-week high mark of ₹500.75 apiece on the BSE.
Also Read: OPEC+ sticks with oil production cutbacks for first quarter to prevent surplus amid weak demand
Bharat Petroleum Corporation Limited (BPCL) shares were also locked at nine per cent upper circuit to hit a 52-week high of ₹563.30 apiece on the BSE. BPCL also emerged as one of the top gainers on Nifty 50 today.
In the October-December quarter of fiscal 2023-24 (Q3FY24), IOC’s net profit rose multifold year-on-year (YoY) to ₹8,063 crore on inventory gains and higher marketing margins. However, the state-owned fuel retailer’s net profit dropped 38 per cent sequentially in the December quarter.
BPCL’s net profit surged 82 per cent to ₹3,181 crore helped by strong refining and marketing margins. The stock had jumped 5.89 per cent to scale a one-year high level of ₹501.45 after the quarterly results were out last month. HPCL’s net profit dropped 90 per cent sequentially but tripled YoY to ₹529 crore in the December quarter as robust marketing margin negated inventory losses.
How Interim Budget 2024 boosted OMC stocks
Finance Minister Nirmala Sitharaman while presenting the Annual Budget for 2023-24 on February 1 last year announced and equity infusion of ₹30,000 crore in IOC, BPCL, and HPCL to support their energy transition plans.
Alongside, she had also proposed ₹5,000 crore for buying crude oil to fill strategic underground storages at Mangalore in Karnataka and Visakhapatnam in Andhra Pradesh that India has built to guard against any supply disruptions.
In November last year, the finance ministry halved the equity support, while the Interim Budget 2024 that Sitharaman presented in Lok Sabha on Thursday, showed no allocation for equity infusion in current fiscal. The ₹15,000 crore-capital has now been earmarked for 2024-25 fiscal (April 2024 to March 2025).
Finance Secretary T V Somanathan at a post-budget press conference also said the requirement for capex was reassessed and it was brought down to ₹15,000 crore. This amount has been now deferred to the next fiscal, he confirmed. The budget documents did not provide any funds either in the current fiscal or the next for filling of the strategic reserves.
While other state-owned oil firms such as Oil and Natural Gas Corporation (ONGC) and GAIL (India) have also lined up investment plans worth-crores to achieve net zero carbon emissions, the capital support was limited to the OMCs, who had suffered huge losses in 2022 when they froze the retail petrol, diesel and cooking gas prices despite a spike in crude oil prices following Russia’s invasion of Ukraine.
Also Read: India’s crude oil output down 1.03% to 2.5 MMT in December, imports rise 1.1% YoY: PPAC
Last year’s Annual Budget provided ₹35,000 crore for capital investments towards energy transition and security. Out of this, ₹30,000 crore was towards capital support to OMCs for green energy and net zero initiatives, and the remaining for the purchase of crude oil for caverns at Mangalore and Visakhapatnam.
Reports say that the decision may be linked to a boost in profitability of the three firms in the current fiscal which has partly covered for the losses in the previous 2022-23 (April 2022 to March 2023) fiscal. The three OMCs made decent profit this year as the freeze in retail selling prices extends into the 21st month despite crude oil prices having softened.
Crude prices supporting OMCs?
OMC stocks have been on an uptrend and scored record-high levels in the last few weeks over the stable prices of international crude oil as investors expect limited effects of supply cuts announced by the OPEC+ group. Domestic brokerage firms had also highlighted that OMCs will find support with global crude oil prices sustaining below the $80 per barrel-mark in the near-term.
OPEC+ have pledged roughly 900,000 barrels a day of additional output curbs for the first quarter as global demand growth slows and rival supplies, led by the US, continue to climb.
Oil prices dipped about two per cent on Friday after strong US jobs data diminished the odds of interest rate cuts in the short term, setting up both benchmarks for a weekly loss given China’s faltering economy and persistent geopolitical tensions.
Brent crude futures were down $1.40, or 1.8 per cent, at $77.30 a barrel and US West Texas Intermediate crude futures fell $1.59, or about 2.2 per cent, to $72.23, according to news agency Reuters.
High interest rates, which tend to dampen economic growth and oil demand, in major economies like the US and the euro zone appear to be here to stay in the near term. A weekly loss in oil prices was already in motion after reports of a ceasefire between Israel and Hamas caused prices to settle more than two per cent down on Thursday.
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Published: 02 Feb 2024, 09:23 PM IST
