have faced a double whammy from the coronavirus outbreak and a price war between Saudi Arabia and Russia after OPEC and other producers failed to agree on deeper cuts to support oil prices in early March.
"A likely increase in oil output by both Saudi Arabia and Russia from Q1FY21E and lower demand are expected to lead to a sizeable oversupply in the oil market. Subsequent low oil prices are expected to significantly affect ONGC’s profitability," say analysts at ICICI Securities.
As regards oil marketing companies (OMCs), the brokerage said that they are expected to face huge inventory losses during March quarter and report losses. However, higher marketing margins are expected to provide respite to OMCs as the cost benefit has not been fully passed on to consumers.
"Although it is difficult to assess the exact impact of the ongoing situation, lower demand of all kinds of fuels amid coronavirus outbreak are expected to impact Q4FY20E, FY21E earnings of the companies. A decline in stock prices presents investors with a buying opportunity," wrote Mayur Matani, research analyst at ICICI Securities in a co-authored note with Amogh Deshpande.
The brokerage prefers city gas distribution (CGD) companies and selective OMCs. CGD companies are a structural play on increasing gas demand, favourable government policies and competitive price advantage versus competing fuels, it noted.
It has "buy" rating on Adani Gas, BPCL, Gujarat Gas, Gujarat State Petroleum Corporation (GSPL), HPCL, Indraprastha Gas (IGL), Mahanagar Gas (MGL), and Petronet LNG.