Morgan Stanley has turned more constructive on upstream oil producers while turning cautious on gas utilities, as a shift in global energy dynamics reshapes sector preferences. The brokerage highlights that disruptions to LNG infrastructure in Qatar have tightened global gas markets, reversing earlier expectations of oversupply and pushing up gas prices.
The tightening in LNG supply is expected to rebalance global markets, with Morgan Stanley now factoring in a supply disruption extending into 2026. This has raised the relative attractiveness of alternative fuels such as coal and diesel, while dampening demand growth for gas.
As a result, sectors linked to upstream oil, refining, coal, fertilisers, and select power producers are emerging as beneficiaries. On the other hand, gas-linked businesses are likely to see slower consumption growth due to higher input costs and demand sensitivity to pricing.
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Top Picks: ONGC, Oil India
Morgan Stanley reiterates its Overweight stance on upstream oil companies, citing stronger free cash flow visibility supported by elevated oil prices and firm global energy spreads.
- ONGC: Maintained at Overweight; target price raised to Rs 363 (from Rs 299)
- Oil India: Maintained at Overweight; target price raised to Rs 563 (from Rs 455)
The brokerage prefers companies with integrated operations, which can better capture value across the energy chain. Higher oil prices, coupled with relatively elevated gas prices, are expected to support earnings and cash flow generation for these players.
Downgrades: GAIL, Petronet LNG
In contrast, Morgan Stanley has downgraded gas utilities, flagging demand risks in a high-price environment:
- GAIL: Downgraded to Equal-weight (from Overweight); target price cut to Rs 150 (from Rs 236)
- Petronet LNG: Downgraded to Equal-weight (from Overweight); target price cut to Rs 276 (from Rs 342)
The brokerage notes that gas demand remains highly price-sensitive, and elevated LNG prices could weigh on volume growth. This limits upside for companies dependent on transmission and regasification volumes. Refiners, fertiliser companies, and coal ecosystem players are also expected to benefit from the shift in fuel economics.
The brokerage is also more constructive on petrochemicals globally, with higher LNG and oil prices improving spreads, while Southeast Asian names like PTT Global Chemicals and Petronas Chemicals remain key picks.
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