ONGC shares slip as HSBC downgrades stock to 'Reduce' on falling oil prices

Oil And Natural Gas Corporation Ltd (ONGC)

Shares of ONGC fell as much as 2.5 percent on September 19 after HSBC downgraded the stock to a 'Reduce' rating due to falling oil prices and its impact on the company's future project viability. The brokerage set a target price of Rs 235 for ONGC which implies a downside of nearly 18 percent from the stock's current market price.

At 12.52 PM ONGC shares were down 1.7 percent at Rs 285. ONGC shares have gained over 10 percent in the past six months, underperforming the Nifty 50 which gained over 16 percent during the same period.

HSBC had a bearish outlook on the oil sector as a whole. The key issues identified by HSBC for ONGC were the declining production rates and reduced guidance for the KG basin field. The brokerage firm also raised concerns about the growing intensity of unrelated capital expenditures which it expects to increase as well.

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Another major point of worry is the weaker performance of ONGC's subsidiaries, which may limit the company’s ability to pay dividends.

ONGC has been facing pressure since Brent crude prices dropped below $75 per barrel mark earlier this month following the Organization of the Petroleum Exporting Countries (OPEC) decision to lower its demand outlook for 2024 and 2025. So far in September, ONGC shares have declined by nearly 14 percent.

On September 10, OPEC lowered its 2024 global oil demand growth forecast to 2.03 million barrels per day (bpd) from 2.11 million bpd. OPEC attributed the downgrade to China, cutting its 2024 growth forecast for the country to 650,000 bpd from 700,000 bpd amid economic challenges and a shift to cleaner fuels.

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