Fund raising plans and talks of the Centre planning to infuse funds boosted the stocks of PSU refiners and oil marketing companies on Wednesday. Most of the refinery stocks, barring market behemoth Reliance Industries (RIL), and Gujarat State Petronet Ltd (GSPL), ended in the green. 

Bharat Petroleum Corporation Ltd (BPCL), touched its 52-week high of ₹387 on Wednesday but closed at ₹386.25, up nearly 3 per cent over the previous day’s close; in fact, the stock has seen a 155 per cent increase so far this year. The board recently approved raising capital up to ₹18,000 crore by way of a rights issue. IOC, too, recently announced its plan to raise funds through a rights issue The board is meeting on July 7.

Mangalore Refinery & Petrochemicals Ltd (MRPL) went up the most with a 12.19 per cent gain to close at ₹88.89. During the day, the stock scaled its 52-week high too at ₹90.98. Similarly, Chennai Petroleum Corporation Ltd recorded its 52-week high on Wednesday at ₹443.65; however, closing at ₹427.65, up 6.9 per cent.

The stock of Indian Oil Corporation (IOC) went up almost one per cent to ₹95.52.   

Recent announcements of plans to raise equity capital by two of India’s top-three State-owned oil marketing companies (OMC) — BPCL and Indian Oil Corporation Ltd (IOC) — should strengthen their capex spending and the credibility of their emission-reduction plans, says Fitch Ratings.

“An injection of capital from the Indian government would provide further evidence for our assumption that the two companies would receive extraordinary sovereign support if needed, the key factor underpinning their ‘BBB-’/Stable ratings,” it added.

The three major PSU refiners — BPCL, HPCL, IOC — reported a combined profit of ₹20,000 crore in the last quarter. In June, Anand Rathi recommended Buy on BPCL with target price of ₹425. 

The news of Manali Petrochemicals acquiring a minor stake in First Energy, a Thermax Group company, resulted in the stock closing 1.91 per cent higher at ₹68.33.  

Bhavik Patel, Senior Research Analyst at Tradebulls Securities, said foreign funds are looking for sectors which have not yet been tapped and pointed out that petroleum sector is attractive right now.. 

In tandem with OPEC cuts 

The US Energy Information Administration forecasts Brent crude oil price to increase in the second half of 2023. Supply cuts announced by OPEC+ nations including Saudi Arabia has pushed crude oil prices up. “The outlook for the sector looks good, but won’t outperform broader markets as going forward, whenever OPEC decides to slash production to prop up prices, margins of these OMCs are going to get hurt,” said Patel. 

Kotak Institutional Equities said that for oil marketing companies (OMCs), high over-recoveries of nearly ₹24,000-25,000 crore will more than offset weaker refining margins. 

Brokerage Prabhudas Lilladher, in its report on the sector, said, “We expect OMCs’ results to be operationally better owing to recovery in marketing gains of blended margins at ₹9/litre vs ₹3/litre in Q4, despite lower GRMs. So, while refining profits will be lower, recovery in marketing margins will drive Q1 PAT.”

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