Oil stock valuations tumble over policy hurdle - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Oil stock valuations tumble over policy hurdle

May 25, 2000

The intelligent investor might wonder why the market continues to offer a bargain; arenít markets supposed to be efficient. Refining stocks continue to trade near their 52 week lows (they rallied in the last week though). Perhaps there is a market compassion theory; market provides another opportunity to investors to recover from TMT explosions. More likely though, is that the market is unsure about Government divestment and the future path the sector will take. To hazard a guess; the Government currently proposes to completely deregulate the oil sector by 1st April 2002. It has already deregulated the exploration & production (E&P) and refining sector while the APM is still to be dismantled. The Government has signed production-sharing contracts under the New Exploration Licensing Policy (NELP). On further clarification of the policy one can expect the international majors to enter the up and downstream sectors as current crude prices are attractive to set up new E&P ventures and India remains one the fastest growing markets for refined oil.

In this new scenario the PSU behemoths (IOC, BPCL, HPCL) will probably need to integrate vertically in order to withstand competition. Hence, consolidation in the sector looks very much on the cards. The government has decided to divest its stake in the stand-alone refineries to the behemoths. This does not amount to disinvestment as assets continue to be in Government control unless the Government divests from the behemoths.

In the private sector a force also to reckon with might be Reliance should there be a merger between the Reliance companies in the oil and petrochemical sector. It will then be present on three levels of the value chain E&P, refining and petrochemicals. For marketing of its controlled products (diesel, petrol, ATF, naphtha and LPG) it has tied up with IOC and post 2002, IOC will market 52% of its output the remaining will be marketed under the Reliance & IOC JV. Hence, it will not require setting up of an independent marketing channel.

Once the APM dismantling goes through, one can expect greater competition and consolidation in the refining sector. Those companies who are able to set up a retail distribution network will have an edge over the others.

Better valuations in the sector might only materialise when the Government stops vacillating and gives strong indication of its plan of action.

Equitymaster requests your view! Post a comment on "Oil stock valuations tumble over policy hurdle". Click here!


More Views on News

5 Green Energy Stocks to Watch as India Readies for a Revolution (Views On News)

Oct 13, 2021

The excitement around green energy stocks has opened up a huge contrarian opportunity in the traditional energy space.

Top Performing PSU Stocks over the Past One Year (Views On News)

Oct 1, 2021

After a decade of underperformance, PSU stocks have woken up. Here are the best performing PSUs of past twelve months.

Linde India Shares Hits New High. Up 230%+ in One Year (Views On News)

Aug 26, 2021

Linde India shares have surged sharply in the past few trading sessions. What's causing the rally?

ONGC Logs Massive Jump in Net Profit as Crude Oil Prices Double (Views On News)

Aug 16, 2021

Rising crude oil prices compensate ONGC's fall in production.

HPCL Shares Under Pressure After Profit Declines in June Quarter (Views On News)

Aug 5, 2021

Rising crude oil prices and forex woes weigh on HPCL's quarterly numbers.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

MobiKwik IPO Opens for Subscription Soon. Key Things to Know Before Subscribing. (Views On News)

Nov 20, 2021

The Rs 19 bn issue is set to hit the market soon.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Nov 29, 2021 (Close)