What's Hitting The Shares Of Oil Marketing Companies?

Business

oi-Sunil Fernandes

By Sunil Fernandes

Published: Friday, May 4, 2018, 11:21 [IST]

Shares In Hindustan Petroleum today plunged to a new 52-week low of Rs 292 on the NSE, while shares of BPCL and Indian Oil are just one per cent away from 52-week lows.

Crude oil prices have been rising, but, oil marketing companies have not been allowed to raise prices of the fuel on account of the elections in the state of Karnataka.

Each time oil marketing companies are unable to raise prices, they have to incur losses. In this case it is unclear whether the losses will be absorbed by the government or the companies.

It looks like the companies would have to bear the losses, though petrol and diesel prices have been aligned to market rates. The worry for oil marketing companies in the next one year would be elections that are slated in major states like Madhya Pradesh and Rajasthan and later the elections to the central government in 2019.

This means if crude oil prices rise significantly from the above levels, we could see massive losses for oil marketing companies in the coming days, as the government maybe reluctant to allow the to raise rates. However, if crude prices dip, it would be very interesting to buy into the shares of HPCL, BPCL and Indian Oil.

Already select stocks like HPCL are available at a dividend yield of 10 per cent, based on dividends of 2017-18. However, be rest assured that if profits of the oil marketing companies are hit based on rising crude prices, they are unlikely to declare the same dividends.

The most important factor that would determine how crude prices move would be the Iran US Nuclear deal. If Donald Trump decides to pull out of the deal, crude prices could rise sharply, impacting the profits of oil marketing companies. So, there could be a risk in store for investors, if they choose to buy the shares of oil marketing companies.

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