Kotak Equities bearish on OMCs, reiterates 'buy' call for GAIL and ONGC

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26 Aug, 2025 12:21

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Oil retailers HPCL, BPCL and IOC fell more than a percent intraday on April 23 after crude prices moved near 2019 highs as the US moved to end all sanction exemptions to oil importers from Iran.

These stocks have fallen 7-12 percent in last one month as Brent crude futures, the international benchmark for oil prices, has climbed over $70 a barrel. Crude shot 50 percent to $74.4 a barrel, from its December lows around $50 a barrel.

Kotak Institutional Equities expects global oil markets to tighten further in the near term due to full curtailment of Iran’s oil exports and the possibility of disruptions in crude supplies from Libya given escalating unrest in the country.

Hence, it has retained sell call on HPCL, BPCL and IOC, which are expected to be adversely impacted.

"We believe it is safer to avoid downstream PSUs (BPCL, HPCL and IOCL) in the near term, as current valuations ignore potential risks from any spike in crude that may put pressure on refining as well as marketing margins and bleak refining outlook," the brokerage said.

However, it reiterated its buy call on GAIL and ONGC, both being beneficiaries of elevated crude prices, and can act as good hedge against any spike in crude. "We note that ONGC stock is pessimistically discounting net crude realization around $45 per barrel," it said.

Rising oil price is also negative for India that imports 80-85 percent of its requirement, which is why the market has been under pressure for the last few sessions.

According to the brokerage house, Iran's crude production may likely fall to around 1.8 million barrels per day, closer to the level of domestic consumption, from peak volumes of 3.8 million barrels per day in June 2018 and around 2.7 million barrels per day in Q1CY19.

Libya’s crude production of around 1.1 million barrels per day currently may also get restricted if its internal conflict reaches its oil fields or export terminals, Kotak feels.

Global oil markets have already tightened in recent months due to a voluntary reduction in supplies by OPEC+ and Canada, and restraints on Venezuelan crude exports by the US.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.