OMC Stocks Maybe Good Contrarian Buys At Current Levels

Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    Oil Marketing Company (OMC) shares have been falling as crude oil prices edge higher. However, at these levels it may not be a bad idea to take a contrarian call on oil marketing companies.

    How oil marketing companies are impacted by crude prices?

    When crude prices rise, margins of oil marketing companies (HPCL, BPCL, IOC) tend to get impacted as they import crude and refine the same into petrol, diesel etc. However, since petrol and diesel prices are linked to market rates, there is no such major worry and they can pass on the hike to consumers.

    OMC Stocks Maybe Good Contrarian Buys At Current Levels
    The problem for oil marketing companies lies in government intervention. If the government does not allow to hike petrol and diesel prices, these companies would be badly hit, if they are asked to absorb the price rise. There were reports that the government may ask oil marketing companies to now absorb the hikes. 

    However, we have to bet on the fact that crude prices would fall, if you are betting on the stocks of oil marketing companies. There are several reasons to believe so. Firstly, there is enough and plenty of crude supply, especially from places like Iraq, which will have fresh supply coming in.

    At $75 per barrel, we could see shale oil production resuming and adding to fresh supply. Hence, we see crude prices dropping at some stage, which should augur well for the oil marketing companies.

    Some of these companies like HPCL, BPCL and IOC have been paying a hefty dividend in the last few days. If they maintain the same dividend, you are in for yields of as much as 6-7 per cent. However, one would have to wait and watch to see if the dividends are maintained.

    Sharp fall in stock prices

    The one reason to be betting on these stocks is that the downside risk now, in these shares seem very limited. HPCL has seen its shares fall from levels of Rs 490 to Rs 307, while BPCL has dropped from levels of Rs 551 to Rs 382. Similarly, IOC has also seen a huge slump of almost 40 per cent in its stock price.

    GoodReturns.in 

    Read more about: bpcl hpcl ioc
    Story first published: Tuesday, April 24, 2018, 10:35 [IST]
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more