Shares of India's upstream oil companies surged by 4-8% on Monday, due to rising oil prices and lower valuation.
Oil and Natural Gas Corp. surged 8.18% to a 52-week high of Rs 253 per share, followed by Oil India Ltd., which rose 4.4%. Shares of Reliance Industries Ltd., that enjoys the second-highest weightage among Nifty 50, surged 4.46% intraday to a record Rs 2,826.95 apiece.
Factors Contributing To Uptick:
Market Preference: The Nifty PSE has surged 9% in the past month, compared to the 1% decline in the Nifty 50, suggesting a possible market preference for public sector undertaking companies.
Brent Crude Prices: Brent crude prices rose 1.5% intraday on Jan. 29 and have seen a 9% increase in the past month. The price uptick impacts upstream companies positively, as it leads to higher realisations for oil exploration and production companies.
Lower Valuations: Upstream companies trade at a relatively lower price to earnings multiple. Oil India is the cheapest at a P/E ratio of 5.17, trading at an 8.91 multiple. While Reliance has a higher P/E ratio of 28.63.
Company Specific Triggers
ONGC announced successful production at its deep-water KG-DWN-98/2 Block on Jan. 7. The company anticipates the block to produce 45,000 barrels of oil per day. With the commencement of production at the block, the company expects to achieve its production target of around 1.5 million metric tonne of oil and 2 million cubic metres of gas, it said in an analyst meeting on Nov. 15, 2023.
With respect to Reliance Industries, not only do the retail and upstream segments have positive factors working in their favour, but the conglomerate's telecom business is expected to benefit as it sees market share gains and tarrif hikes, as per a BofA Securites' note on Jan. 3.
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