As the Middle East conflict continues, leading to an extended closure of the Strait of Hormuz, HSBC has reined in on India's oil and gas space, notably pinpointing how higher prices can weigh on earnings of key players such as BPCL, IOCL and HPCL.
In its latest note, the brokerage has gone on to downgrade these stocks, citing that higher crude prices will lead to a sharp cut in earnings for oil marketing companies. The brokerage is expecting marketing losses even if prices stabilise at around $75 per barrel levels. This is concerning, particularly considering the fact that oil prices are currently trading at $100 per barrel levels.
Keeping that in mind, HSBC has downgraded IOCL from buy to hold, cutting the target price from Rs 220 to Rs 150. BPCL was downgraded to hold from buy as well, with a fresh target price of Rs 340, compared to an earlier target of Rs 470.
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HSBC has also cut the target price of HPCL, reducing the target from Rs 620 to Rs 360. This accounts for a 50% reduction in target price, thus signifying the sheer impact higher oil prices can have on these oil marketing companies.
However, while HSBC has downgraded most oil stocks, the brokerage has remained rather positive on ONGC, adding that the company is a potential beneficiary of higher crude prices.
But potential policy risks overshadow a case of supernormal profits for ONGC. As such, HSBC hasn't upgraded their outlook on ONGC, maintaining a 'reduce' rating but hiking the target price from Rs 200 to Rs 240.
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