ONGC,Oil India stocks: Investors need to exercise caution
Published On: Friday, July 3, 2020 | By: Team KnowMyStock
ONGC and Oil India shares gained up to 1.7 percent yesterday (2nd July 2020) as crude oil prices rose on the back of lower US oil inventories. The two stocks have gained 32-34 percent from their March lows, as oil prices rebounded from under-$20 per barrel to over $40 now. Though market sentiment has improved and a recovery in oil prices bodes well for the state-owned oil and gas producers, investors need to be cautious. The March quarter (Q4) performance has been weak, and the June quarter is likely to see the impact of the disruption caused by Covid-19. For FY21, too, analysts don’t expect significant growth in crude output and are factoring in lower oil and gas prices. Hence, they expect a decline in earnings.
Though a global economic recovery bodes well for demand and, thus, oil prices, the risk of a second wave of Covid-19 can lengthen this recovery period. Moreover, production discipline among oil-producing countries holds the key for oil prices sustaining at higher levels.
For ONGC, valuations are still un-demanding, keeping some analysts positive, but others remain cautious. Kotak Institutional Equities believes the stock is already discounting crude prices recovering to $48. For Oil India, Nomura says, “While valuations are inexpensive, we do not see near-term catalysts, at present.”
Source: https://www.business-standard.com
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