HPCL in red as Morgan Stanley downgrades stock to 'underweight'

A rise in global crude price, increases input costs for the Indian OMCs like HPCL. (Image: Reuters)

Shares of Hindustan Petroleum Corporation Ltd (HPCL) slipped more than 2 percent in the morning trade on April 13 as Morgan Stanley downgraded the stock to underweight and reduced the target price on the back of higher crude prices.

The global investment bank cut the target price of HPCL to Rs 220 from Rs 254  and that of Bharat Petroleum Corporation Ltd (BPCL) to Rs 390 from Rs 440. A benign energy price environment and improved domestic demand are key going forward, it said.

As global crude oil prices rise, it increases the input costs for the Indian oil marketing companies (OMCs), weighing on their profitability and performance.

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Brent crude oil prices on the Intercontinental Exchange were at around $87 a barrel. OMCs are likely to start incurring heavy losses when crude moves above the $85-a-barrel mark, which is largely the breakeven range for these companies, analysts said.

At 10.52 am, HPCL was down 2.4 percent from the previous close at Rs 224.35 on the BSE. The share price of BPCL was at Rs 332.25 apiece, down 1.4 percent from the previous close.

Global oil prices rose on April 12 after data showed that inflation in the US slowed in March, raising hopes of the Federal Reserve pausing its interest-rate hike cycle at the upcoming policy meeting.

A pause in the interest-rate-hike cycle by the US Fed is likely to maintain liquidity in the economy, generating demand for crude.

On April 12, International Energy Agency’s executive director Faith Birol said crude oil prices are expected to rise further, which could significantly increase India’s import bill.

India imports more than 85 percent of its oil needs and is the world’s third-largest importer of the commodity.

HPCL is trading below the 50- and 100-day moving averages, which signals a bearish trend in the stock. The stock has fallen nearly 5 percent since April 3 when the Organization of the Petroleum Exporting Countries (OPEC) decided to slash its production level for May by more than 1 million barrels a day to shore up prices.

The stock price has risen nearly 10 percent in the last three years, while it has shed as much as 23 percent in the past year.

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