Oil and Natural Gas Corporation (ONGC), Oil India Shares extended their losing streak on Wednesday after crude oil price sank overnight in the international market. ONGC was down 5.5 per cent as of 10.50 am on BSE while Oil India fell 8 per cent. In the last five days, both stocks are down 21 and 31 per cent respectively.
Why are Oil Stocks Sinking?
The fresh fall was on account of sharp decline in Brent crude prices on Tuesday, as concerns of possible global recession triggered fears of curtailed fuel demand, outweighing supply disruption fears. However, oil prices rose as much as nearly 3 per cent on Wednesday before paring some gains as investors piled back into the market after a heavy rout in the previous session, with supply concerns returning to the fore even as worries about a global recession linger, the Reuters reported.
On July 1, the government announced export taxes and imposed restrictions on exports of petrol, diesel and aviation turbine fuel (ATF) in order to secure supplies of these products domestically at a time when exports are becoming highly remunerative. Similarly, given the sharp surge in oil prices, the government also levied a special additional excise duty (SAED) on the production of crude oil.
Nishit Master, Portfolio Manager, Axis Securities, said: “Oil stocks have been weak after government-imposed special additional excise duty of Rs23250 per tonne on sale of locally produced crude oil. On top of this, yesterday saw a significant fall in crude prices globally on fears of a recession in US and Europe which will hit realization and profitability of both ONGC and Oil India which explains today’s fall.”
Share Price History- Oil India, ONGC Tank Up To 33% in 1 Week
Oil India was down 8 per cent at Rs 175.85 on the BSE in intra-day trade today. In the past one week, Oil India has tanked 33 per cent after the government on July 1 imposed a special additional excise duty of Rs 23,250 per tonne on crude oil production. With the recent one week decline, the stock has now corrected 43 per cent from its 52-week high of Rs 306 touched on June 9, 2022.
ONGC, which was down 6 per cent at Rs 119.80 in intra-day today, has slipped 21 per cent in the last one week. The stock plunged 38 per cent from its 52-week high of Rs 194.60 touched on March 8, 2022. In comparison, the S&P BSE Sensex was up nearly 1 per cent in past one week.
What Do Analysts Say?
Analysts at Motilal Oswal Financial Services have cut the realizations of ONGC and Oil India to USD60/bbl each for 2Q-3QFY23 and leave the same unchanged for 4QFY23 onwards. “We also assume that the royalty and cess would be calculated on the realized price and the benchmark. At USD100/bbl, these two would be equivalent to the additional reduction in realization by USD12/bbl. As a result, we cut our EPS of ONGC/Oil India by 29 per cent/25 per cent for FY23E, respectively,” the brokerage firm said.
Investors had remained wary of some form of windfall taxation on both ONGC and Oil India. As a result of the same, we had been valuing the stocks at 3.5x and 5.9x standalone P/E, respectively. Now that the clarity has emerged on that front, we cut the realizations for the companies keeping our multiples unchanged at 3.5x/5.9x, for ONGC/Oil India, respectively, the brokerage firm said.
Others in the petroleum block, especially refiners including Reliance Industries, Chennai Petroleum and Mangalore Refinery, were down up to 10 per cent. Oil marketing companies (OMCs) were trading with gains of up to 3 per cent.
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