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- Today, shares of Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), and Indian Oil Corporation Ltd (IOC) have experienced significant declines, dropping 9-16% from their 52-week highs recorded in February 2024.
- The downward trend is largely attributed to the volatile crude oil prices, concerns over marketing margins amid the election season, and weaker gross refining margins.
- “Despite the recent underperformance, analysts are now seeing favorable risk-reward ratios for these stocks,” noted a financial expert.
This analysis provides an in-depth look at the factors driving the recent downturn in HPCL, BPCL, and IOC share prices, and what investors might expect going forward.
Impact of Crude Oil Volatility
Since February, Brent crude prices surged from around $77 a barrel to over $90 in April, placing significant pressure on the margins of oil marketing companies (OMCs) that rely heavily on imports. The subsequent increase in operational costs and working capital needs further strained their financials. However, recent corrections in crude prices to about $82-83 a barrel have somewhat eased these pressures.
Election Influence on Marketing Margins
During the election period, OMCs were unable to adjust fuel prices in response to rising crude prices, impacting their marketing margins. Analysts from Antique Stock Broking anticipate that “post-elections, daily revisions in petrol and diesel prices are expected to resume, normalizing these margins.”
Challenges in Refining Margins
Refining margins have also been a point of concern, contributing to the less-than-expected Q4 performance of these companies. “The disappointing results in refining margins were primarily due to lower distillate yields, although marketing performed better than anticipated,” reported Yes Securities.
Future Outlook and Analyst Expectations
Despite the current weaknesses in both gross refining margins (GRMs) and marketing margins, analysts foresee a potential rebound. “The demand-supply dynamics in refining are expected to remain favorable over the next two years, aiding in a recovery,” added experts from Antique Stock Broking. HSBC analysts maintain a ‘Buy’ rating on OMCs, predicting limited impact from ongoing GRM weaknesses due to expected stabilization in crude prices and improved pricing autonomy post-elections.
Conclusion
While HPCL, BPCL, and IOC shares have faced significant headwinds from both external market forces and internal operational challenges, the easing of crude oil prices and anticipated post-election adjustments in fuel pricing could provide a much-needed lift to their stock valuations. Investors are advised to monitor these developments closely as they consider the potential for recovery in these key industry players.
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