ONGC Is The Lone Star In A Gloomy Sky, Says Kotak As It Upgrades Rating — Check Revised Target

Oil and Natural Gas Corporation (ONGC) is back in favour with analysts, as Kotak Institutional Equities upgrades the stock to 'Buy' from the earlier 'Add', citing a stronger crude price outlook and easing regulatory risks. The brokerage has also raised its fair value to Rs 375 from the earlier Rs 280, pointing to improved earnings visibility.

The upgrade comes as oil markets remain elevated amid geopolitical tensions, particularly around key supply routes like the Strait of Hormuz. Kotak now assumes crude prices of $85 per barrel for FY27 and $75 for FY28-higher than earlier estimates-tilting the earnings outlook decisively in ONGC's favour.

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Higher Realisations, Lower Regulatory Overhang

A key driver for ONGC is improved realisation from its crude output. A growing share of production from new wells, which are more market-linked, is boosting pricing power. This is complemented by recent policy changes that reduce the likelihood of heavy-handed government intervention during periods of high oil prices.

Historically, windfall taxes and subsidy burdens have capped upside for upstream companies. However, the current framework suggests that any such levies would likely be temporary and less severe, lowering downside risks.

Operationally, ONGC is also seeing a gradual recovery. While legacy fields continue to show muted output, new projects are expected to drive incremental growth. Production ramp-up from the KG-98/2 block and western offshore assets, including Mumbai High, is likely to support volumes. Gas output, in particular, is expected to improve, providing an additional earnings lever.

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Valuation Comfort Remains

Despite recent gains in oil prices, ONGC's valuations remain relatively reasonable. Kotak has raised its earnings estimates for FY27 and FY28, supported by both higher crude assumptions and better operational metrics.

The brokerage also sees room for valuation expansion as earnings visibility improves, especially in a global environment where energy security concerns are back in focus.

The upgrade reinforces ONGC's positioning as a direct play on global oil prices. While risks remain-especially if geopolitical tensions ease sharply-the near-term setup appears favourable.

ALSO READ: ONGC Target Price Cut: Sustained Production Growth Needed For Re-Rating, Says Macquarie

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