A tough year looms ahead for India's oil and gas sector as a demand-supply mismatch and geopolitical uncertainties will likely keep the price of Brent crude elevated.
Oil prices will hold the gains made in late 2017 and Brent will rise to $63 amid robust demand, supply curbs from Russia, geopolitical uncertainities and the upcoming general elections in 2019, investment banking firm Jefferies said in a report.
Rising oil prices may hit corporate earnings in the sector, especially for downstream companies, the report said. Upstream companies though will benefit.
We like Oil and Natural Gas Corporation Ltd., prefer Indian Oil Corporation Ltd. to Bharat Petroleum Corporation Ltd. or Hindustan Petroleum Corporation Ltd.. We retain an ‘underperform' on expensive Reliance Industries Ltd.Jefferies Report
Here are the brokerage's key calls.
- Oil at $63 will leave ONGC's earnings per share 15 percent higher in the coming financial year. Maintained 'buy' with an increase in target price to Rs 225 per share from Rs 215 apiece.
- Oil India Ltd.'s exploration and production valuations are similar to ONGC's gaining a thumbs up.
- Maintained 'underperform' on BPCL and HCPL.
- Maintained 'buy' on IOCL.
- Maintained 'underperform' on Reliance Industries - India's largest oil refinery.
Elevated oil prices might also pose a risk for India's current account deficit due to the rising dependence on imported oil. Net oil imports may rise 20 percent to $78 billion in the next fiscal year creating a 22 basis point headwind for the country's GDP growth, Jefferies said.
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