Why investors are gunning for OMC stocks

Weak crude & improving earnings prospects are fuelling stocks of OMCs

Illustration by Kishore Das

Nishi Vasudeva will finally call it quits next March, when she steps down as the chairman and managing director of HPCL. Vasudeva, who worked with HPCL for about 37 years, is the only lady to have ever headed the country’s fourth-largest company by revenue (FY15).

Till date, the top three oil PSUs in India — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL), and HPCL — have never had a woman chief, not even in the role of director. MK Surana, currently the CEO of Prize Petroleum Co, the upstream oil exploration arm of HPCL, will take over from Vasudeva next year.

Incidentally, Surana will be steering HPCL through an interesting era of falling global crude oil prices and, closer home, the benefit of fuel price deregulation and falling under-recoveries playing out simultaneously. In fact, FY15 was a great year for oil marketing companies (OMCs).

As Brent crude prices crashed from $100 levels to as low as $40, OMC stocks caught investor fancy, gaining an average 72% during the fiscal, even as the benchmark Sensex fell around 5%. Since October 2014, when diesel price was decontrolled, OMCs have gained an average of 35% against a flattish Sensex. The buoyancy in the stocks has continued in the current fiscal, with the troika gaining by an average 12% as on October 26. 

What’s interesting is that at 19.75%, FIIs’ stake in HPCL is the highest in 36 quarters, followed all-time highs of 19.67% in BPCL and 3.27% in IOC. Even domestic fund managers are raising their bets on OMCs. Mutual funds’ stake in HPCL is at a seven-quarter high of 9.86%, while their stake in IOC is at a 15-quarter high of 1.3%.

With Brent crude currently hovering around $48 per barrel, OMCs are enjoying refining margins of $8 per barrel — last seen in FY13. And with the Chinese economy showing clear signs of a slowdown, OMCs don’t see crude prices rising anytime soon.

BK Namdeo, HPCLBK Namdeo, director, refineries, HPCL, told Outlook Business on the sidelines of the company’s post-AGM press conf


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