Sensex Opens Flat; Oil & Gas Stocks Outperform

Fri, 6 Jan 09:30 am

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Major, Asian markets have opened lower today. The Nikkei 225 is off 0.44% while the Hang Seng is down 0.43%. The Shanghai Composite is trading down by 0.12%. Stock markets in the US and Europe ended their previous session on a positive note.

Meanwhile, Indian share markets have opened the trading day flat with a positive bias. The BSE Sensex is trading higher by 56 points while the NSE Nifty is trading higher by 24 points. The BSE Mid Cap index and BSE Small Cap index have opened the day up by 0.5% & 0.4% respectively. The rupee is trading at 67.79 to the US$. Barring IT stocks, all sectoral indices have opened the day in green with metal, oil & gas and healthcare stocks witnessing maximum buying interest.

Energy stocks opened the day on a positive note with only MRPL and HPCL trading in the red. According to an article in The Business Standard, shares of refinery companies continued their upward move with the S&P BSE Oil & Gas index hitting nine-year high on the BSE. The index closed 1.78% higher on Thursday.

Reportedly, the oil & gas index hit an intra-day high of 12,601, its highest level since 18 January 2008. IOC hit a new high of Rs 354, up 3%. While Oil India touched a fresh 52-week high of Rs 469, up 3% on the BSE. ONGC, HPCL, IOC, BPCL and OIL from the index were up in the range of 2% to 3%.

S&P BSE Oil & Gas has Outperformed

With Brent prices more than doubling from its previous year low, oil prices have been gaining after an OPEC agreement in November. Oil prices edged higher on expectations that US crude oil inventories are falling and on signs that oil producers are willing to stick to agreed output cuts that came into effect.

In one of the premium editions of The 5 Minute WrapUp, we have spoken about how downstream oil companies have continued with the rally (Subscription Required). We have also gained an insight over the factors that led to the stock price rise. Here's an excerpt from the article:

• "For starters, weak crude prices have reduced the company's purchase costs. The government's move to deregulate diesel and petrol prices has also helped. The stock was a strong performer in 2015, and this healthy run has continued in 2016 too.
  
  There were challenges in the industrial segment too, as the management expressed concerns of an overall slowdown, challenges in the manufacturing sector, and an increase in competition. That said, performance was much better in the first quarter of 2016 as volumes managed to grow led by growth in the auto and industrial segments."

Moreover, crude oil prices have seen a jump from average of US$ 45.82/bbl in Q2FY17 to average of US$ 50.08/bbl in Q2FY17. In rising crude oil environment, with refiners having 15 days to 1-month stock, they register inventory gains. These gains coupled with strong trend in crack spreads will result in higher gross refining margins for oil marketing companies during Q3FY17, the reports noted.

Moving on to the news from stocks in auto sector. According to an article in the leading financial daily, Tata Motors and Castrol have announced the signing of a three-year strategic partnership agreement for the supply of Commercial Vehicle Oils to Tata Motors globally.

The agreement will cover over 50 markets, including in SAARC and the ASEAN region, Middle East, Africa, Russia, and Latin America. As Tata Motors expand globally, Castrol with its established presence in these markets, will support Tata Motors' channel partners with high quality products and services to enhance their market share and profitability.

As per the pact, Castrol will work closely with the Tata team to co-engineer products suited to meet specific requirements of new engine technology and environment regulations.

One must note that, Tata Motors has had a long and enduring partnership with Castrol in India earlier for delivering products and service to customers. Tata Motors is a valued key global strategic account for Castrol which will help in extending the relationship to global markets and increase its market share.

Tata Motors' share price opened the day up by 1%

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