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Oxygen stocks see frenzy-driven rally; they are bound to come down, say experts

The Centre, on April 18, banned the supply of oxygen for industrial purposes, except in nine specified industries and termed it an “essential public health commodity”.

April 22, 2021 / 07:39 AM IST
 
 
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As India is witnessing a strong wave of coronavirus pandemic, the demand for medical oxygen has surged which has boosted the shares of the companies that produce the gas.

Shares of Linde India have jumped 106 percent since February while those of Bhagawati Oxygen have climbed 52 percent and National Oxygen and Gagan Gases have risen 33 percent each.

India has been grappling to meet the heightened demand for oxygen for the last few weeks as the COVID-19 infections surge. Seriously ill COVID-19 patients need additional oxygen as the virus damages the respiratory system strongly.

The Centre, on April 18, banned the supply of oxygen for industrial purposes, except in nine specified industries and termed it an “essential public health commodity”.

The country has also ramped up the production of the gas and from 19 April onwards, Indian Railways has begun transporting Liquid Medical Oxygen and Oxygen Cylinders across the country. Green corridors have been established to facilitate the fast movement of dedicated Oxygen Express trains.

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Many retail investors seem to have interpreted this temporary demand scenario for the gas as an opportunity for stronger returns which not only boosted the gas suppliers' stocks but also shares of Bombay Oxygen Investments which is an NBFC firm and has nothing to do with the gas except for its name.

Shares of Bombay Oxygen have jumped 144 percent since February due to frenzy-driven trade just because of its name and not the fundamentals. Its middle name 'Oxygen' suggested to the investors that the company deals in oxygen supply.

The company's old name was Bombay Oxygen Corporation and its primary business was manufacturing and supplying industrial gases, which was discontinued on August 1, 2019. Now it is a non-banking financial company (NBFC) that doesn't accept public deposits.

Read more: This NBFC firm's shares have surged 157% since February 1 thanks to its name

Ashis Biswas, Head of Technical Research at CapitalVia Global Research expects the rally to be short-lived as the rally is more influence by short-term liquidity than backed by solid fundamentals.

"National Oxygen and Bhagawati Oxygen produce industrial gases, including oxygen. With the government proposal to start a vaccination program for all above 18 years of age from May onward, we expect to ease

the situation," Biswas said.

"The oxygen demand is not likely to stay in such high-demand conditions forever. These stocks are bound to come down at the average price level reflecting the fundamental. We believe it is not the right time to get into such stocks at this level," said Biswas.

Nitin Shahi, Executive Director of FINDOC is of the view that for trading or investment from a medium-term perspective, a position can be taken in these stocks.

"Profits are expected to rise over the next two quarters as demand for oxygen cylinders will there for next 6-9 months. But there are many frontline companies like BPCL, Reliance, Tata Steel that have started supplying oxygen cylinders to hospitals which may hinder their profitability," Shahi said.

A PTI report said Reliance Industries has tweaked manufacturing at its Jamnagar oil refineries to produce over 700 tonnes a day of medical-grade oxygen which is being supplied free of cost to states badly affected by COVID-19.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Nishant Kumar
first published: Apr 21, 2021 01:08 pm

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