To extend losses on windfall taxes and crude oil prices, ONGC and Oil India shares decline by up to

Updated: Jul 17

Following a drop in the price of crude oil overnight on the international market, Oil and Natural Gas Corporation (ONGC), Oil India Shares, continued their losing streak on Wednesday. As of 10.50 am on the BSE, ONGC was down 5.5% and Oil India was down 8%. Both stocks have decreased by 21 and 31% during the past five days, respectively.

Why are Oil Stocks Sinking?

The recent drop was caused by Tuesday's significant dip in Brent oil prices as worries about a potential global recession sparked worries about reduced gasoline demand, which outweighed worries about supply interruption. Although supply concerns have returned to the forefront despite persistent concerns about a global recession, oil prices increased as much as nearly 3% on Wednesday before reversing some gains as investors flooded back into the market following a severe sell-off the previous session, according to Reuters.

As exports are starting to become very lucrative, the government issued export levies and limits on the exports of gasoline, diesel, and aviation turbine fuel (ATF) on July 1. This was done to ensure the domestic supply of these items. Similar to this, the government imposed a special additional excise duty (SAED) on the production of crude oil in response to the rapid increase in oil prices.

Oil stockpiles have been sluggish since the government levied a special additional excise levy of Rs23250 per tonne on the sale of locally produced crude oil, according to Nishit Master, Portfolio Manager at Axis Securities. Additionally, yesterday saw a sharp decline in oil prices because of concerns about a possible recession in the US and Europe, which will hurt ONGC and Oil India's profitability and realization.

Share Price History- Oil India, ONGC Tank Up To 33% in 1 Week

In the intraday session, today on the BSE, Oil India was down 8% at Rs 175.85. Since the government July 1 levied a special additional excise levy of Rs 23,250 per tonne on crude oil production, Oil India has fallen 33% in the previous week. The stock has now fallen 43% from its 52-week high of Rs 306 reached on June 9, 2022, following the most recent one-week loss.

ONGC, which fell 6% today to Rs 119.80 in intraday trading, had fallen 21% over the past week. From its 52-week high of Rs 194.60 reached on March 8, 2022, the stock fell 38%. The S&P BSE Sensex, in contrast, has increased by around 1% during the last week.

What Do Analysts Say?

For the 2Q–3QFY23 period, analysts at Motilal Oswal Financial Services have reduced ONGC and Oil India's realizations to USD60/bbl apiece, leaving them unchanged for the 4QFY23 period onward. "We also assume that the realized price and the benchmark will be used to determine the royalty and cess. These two would be equivalent to a further reduction in the realization of USD12/bbl at a price of USD100/bbl. As a result, we reduced ONGC's and Oil India's respective EPS for FY23E by 29% and 25%, respectively.

Investors had continued to be leery of ONGC and Oil India being subjected to some sort of windfall taxation. We had been valuing the companies at 3.5x and 5.9x standalone P/E, respectively, due to the same. Since there is now more clarity on that front, the brokerage company said it reduced the realizations for the firms while retaining its multiples at 3.5x and 5.9x, respectively, for ONGC and Oil India.

Reliance Industries, Chennai Petroleum, and Mangalore Refinery, among others in the petroleum sector, had their stock prices drop by up to 10%. Trading for oil marketing companies (OMCs) saw advances of up to 3%.

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