Shares in ONGC and Oil India gained up to 2.4% in intra-day trade on July 3, 2020 after crude oil prices climbed due to lower US stockpiles. From its March lows, ONGC after hitting a 52-week low of Rs. 50 has rebounded 65% to levels of Rs. 82.80, whereas Oil India after making a low of Rs. 63.5 on March 13 has recovered 53% to a price of Rs. 97.15 apiece.
In March, crude oil nosedived to negative price levels of up to -$20 per barrel but since then has shown remarkable resilience to now trade at above $40 per barrel.
It is to be noted that a recovery in crude oil price is favourable for state-run oil and gas producing companies.
And going forward though analysts are optimistic on increase in gas production by 12%, prices remain 27% lower in comparison to FY20. Hence, several brokerages including the likes of Edelweiss, Emkay, Antique and Kotak anticipate reduction in earnings for companies in the sector for FY21. For ONGC, the reduction in earnings for FY21 is seen to be by 26-63%, while for Oil India, MOFL and HDFC Securities anticipate a 52-54% decline.
So, despite the gaining streak, investors are advised to exercise a caution on these stocks.