Prefer BPCL amongst OMCs: Motilal Oswal

Brent gained led by supply side concerns: Brent prices averaged USD103/bbl (+7% MoM) in Jul-12 led by reduced OPEC supply as sanctions on Iran came into effect from July 01, 2012, and also witnessed continued US crude inventory drawdown. US Henry Hub gas price was up 21% MoM at USD2.9/mmbtu, while up 51% from decade low of USD1.9/bbl in Apr-12, led by increase in demand and production cuts.

Singapore GRM up 45% MoM to USD8.1/bbl in Jul-12: Sharp increase in light distillate spreads led to 45% MoM increase in GRM to USD8.1/ bbl. Gasoline spread was up 60% MoM led by strong summer demand from Middle East and Europe. Diesel spread was up 15% MoM led by Power deficit in India, Ramzan holidays and in anticipation of strong demand from Australia after planned closure of Clyde refinery.

Both polymer and polyester margins down: Domestic PE and PP margins were down 10-11% MoM and PVC margins were down 23% MoM led by lower demand from Europe and China and carefully maintained inventory in US. Integrated polyester margins were down 11-15% led by weak demand and low cotton prices.

Valuation and view: Likely price hikes in controlled products is positive trigger for oil PSU's. We prefer BPCL among OMC's due to its strong E&P potential and upstream companies, ONGC and Oil India, due to their attractive valuations and dividend yields. Maintain Neutral on RIL due to subdued outlook on refining and Petchem business and decline in KGD-6 production. We maintain Neutral on GAIL and GSPL due to headwinds on incremental gas availability. However, domestic gas scarcity augurs well for Petronet LNG .

Non-Institutions holding more than 90% in Indian cos

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