2 Contrarian Shares To Invest In 2016

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Buy low and sell high is the only way you can make money in the India markets. At times, you cannot keep chasing shares that have already rallied. Your returns, if any are going to be minimal.

Against this backdrop consider to invest in shares that are in the dumps and a sector that is reeling. ONGC and OIL India are two such shares, which may give decent returns next year.

Fortunes linked to crude oil prices

ONGC and Oil India are stocks that move in tandem with crude oil prices, as these are oil exploration companies. As crude prices rise, the share prices of these companies rise. Brent Crude has dropped from levels of $100 to the current levels of $37.

2 Contrarian Shares To Invest In 2016
ONGC shares have plunged from levels of Rs 360 to the current levels of Rs 222.

Oil India on the other hand has seen its share price drop from Rs 592 to Rs 377. Both these stocks are a play on crude prices and rise and fall in tandem with crude prices.

How far can crude oil go?

Many analysts feel that crude oil prices may recover in 2016 and if that happens, share prices of ONGC and Oil India could rally. Here are few reasons why oil prices could gain in 2016.

1) Shale production may dwindle

At $35 a barrel, shale production in several pockets may become unviable. The longer it stays there, the more difficult it would be for shale oil producers. This means production could be hit and hence a recovery in the conventional crude prices.

2) Middle East unrest

The Middle East region has always been on a boil. Geo-political tensions could mean, crude oil could rally.

3) Investment cuts

Exploration and production companies globally are cutting down on investments, as global crude oil falls. When this happens it would mean supply may not be able to keep pace with demand in the near future as investments in the sector have fallen. Investment figures have sharply been cut by major oil producing companies and so has the rig count.

4) Demand could rise

As oil prices become cheaper, people will drive more, pushing demand higher. Countries which are seeing solid economic growth like India, could push oil prices higher.

5) Crude prices may have bottomed

At $35 a barrel, bulk of the bad news for crude prices, including fresh supply from Iran next year has been factored. It's unlikely, that crude would fall below $30, as the prices are at a fresh 7 year low.

ONGC and Oil India attractively valued

Both the ONGC and Oil India stocks are attractively valued. In fact, at current prices, ONGC gives a dividend yield of almost 4 per cent, while Oil India gives a dividend yield of 5 per cent. In terms of p/e as well, they are trading below 10 times. Price to book also is fairly attractive. You are also likely to get dividend 2-3 times a year from ONGC and Oil India.

Both are good contrarian stocks to buy, if you have the patience.

GoodReturns.in

Read more about: ongc, oil india
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