Mumbai: The slump in oil prices on Monday precipitated by the price war between Saudi Arabia and Russia saw shares of Indian oil explorers plummeting.
Oil and Natural Gas Corporation (ONGC) dropped 16% and Oil India declined 10.7% on Monday as lower crude prices will erode earnings.
Reliance Industries plunged 12% on Monday over concern that lower oil prices could affect a proposed deal with Saudi Aramco thats critical for reducing the Indian oil-to-telecom conglomerates debt.
Shares of oil refiners-andmarketers Bharat Petroleum Corp.
Ltd (BPCL), and Hindustan Petroleum Corp.
Ltd (HPCL) jumped as falling crude prices mean lower procurement costs.BPCL closed 4.2% higher while HPCL gained 4.4%.
Indian Oil Corp.
(IOC) ended 2.2% up, having risen 3% in trade."Oil marketing companies could do well in the medium term since the price of oil is expected to remain at the lower end for some time," said G Chokkalingam, founder, Equinomics Research and Advisory.
"Also, soft oil prices could postpone the transition to electrical vehicles by another couple of years."Crude prices declined 21% on Monday following the Saudi move to start a price war after Russia balked at making further steep output cuts proposed by the Organisation of the Petroleum Exporting Countries (Opec) to stabilise oil markets hit by worries over the global spread of the coronavirus.The Reliance decline on Monday was its worst one-day loss in 12 years.
Analysts said the oil price crash could pose a hurdle to an early commencement of Reliances proposed deal with Aramco, whose shares fell below its IPO price on Monday for the first time ever.
In the last two days, Aramco has lost $320 billion in market value.
The December IPO price had valued it at $1.7 trillion."Saudi Aramcos cash flow may be deeply constrained because of that," said Sandip Sabharwal, a Mumbai-based independent market analyst.
"At this stage what the markets are factoring in is that the deal may not happen and they will not be able to do the deleveraging as they had promised."Reliance didnt respond to queries.With Mondays fall, the stock has fallen more than 31% from its record high.
Its market value has slumped by more than Rs 3 lakh crore to Rs 7.06 lakh crore from a peak of Rs 10.14 lakh crore in December when the share hit a record of Rs 1,617.80.
Tata Consultancy Services overtook it as the company with the highest market value at Rs 7.4 lakh crore.
Reliance closed 12.35% lower on Monday at Rs 1,113.15 after falling nearly 14% during the session.Worries about the deal arent justified, some market participants said."Oil prices do not matter for Reliance Industries as it is not a producer but some in the market have a concern that Saudi Aramco deal may not happen because of the fall in crude oil prices," said Sanjeev Prasad, co-head, Kotak Institutional Equities.
"I do not think that Saudi Aramco is weighing a deal, which is for the long term, on the basis of one days market fall.
I don't think these concerns are material." Kotak has a buy rating on Reliance Industries.Goldman Sachs cut the target price on the stock by 5% to Rs 1,750, saying that the macro environment for the hydrocarbon business is challenging due to the negative shock to oil demand from the coronavirus outbreak, partly offset by lower crude premiums for Asian refiners.
However, it has retained a buy rating for Reliance as it believes the correction is overdone.Morgan Stanley has also cut the target price on the stock to Rs 1,632 from Rs 1,753 but maintained an overweight rating.
The brokerage has moved the stock up in its preference order to a top pick."Reliance is down to levels reached last year when it stated its plan to lower debt; concern about energy cashflow is rising.
The stock is pricing in cash cost industry margins on energy, and limited upside from de-gearing despite reduced capital intensity, higher ARPUs (average revenue per user), and improved ROCE (return on capital employed)," said Morgan Stanley.