Indian oil stocks faced heavy selling pressure over the weekend, as the escalating conflict between Israel and Iran sent shockwaves through global markets. The geopolitical tension has led to a sharp rise in crude oil prices, which has significantly affected Indian oil companies, compounding their struggles with a weakening Indian Rupee.
Stock market experts believe that the ongoing volatility is likely to continue in the short term, with oil stocks on Dalal Street expected to experience further dips.
Rising Crude Oil Prices Impact the Market
The primary driver behind the sell-off is the steep rise in crude oil prices triggered by the conflict between Israel and Iran. The surge has put immense pressure on the Indian economy, as India is heavily reliant on oil imports.
According to VLA Ambala, SEBI-registered Research Analyst and Co-Founder of Stock Market Today, crude oil prices for October futures (CRUDEOIL OCT FUT) have already jumped by 13%. This dramatic increase is largely due to concerns over potential disruptions in the Strait of Hormuz, a key passageway for global oil supply.
Ambala also noted that the current geopolitical situation could have broader economic consequences for India, including an impact on its fiscal deficit. The rising oil prices are expected to weigh heavily on the country’s economic stability, with the low trading level of the Indian Rupee further diminishing the purchasing power of Indian oil companies on the international market.
“The energy sector’s momentum has weakened significantly, and we expect a further correction in the coming days,” Ambala said. “However, while the sector is under pressure in the short term, long-term investors may find opportunities, especially in undervalued stocks.”
Weakening Rupee Adds to the Pressure
Adding to the woes of oil stocks is the weakening Indian Rupee, which is currently trading at historically low levels against the US dollar. This decline in the INR has diminished the purchasing power of Indian oil-producing companies, making it more expensive for them to buy crude oil from international markets.
The reduced purchasing power is contributing to the sell-off in oil stocks, as investors become increasingly wary of the potential long-term impact of these challenges.
Market analysts are keeping a close watch on the Relative Strength Index (RSI), which is currently reading above 81, indicating that oil stocks may face further corrections in the coming days.
Despite the negative sentiment surrounding the sector, stock market experts believe that oil stocks could see a quick recovery once tensions in the Middle East begin to ease.
Investment Opportunities Amid the Sell-Off
While the immediate outlook for oil stocks appears grim, several experts believe that the current downturn presents a buying opportunity for medium- to long-term investors. VLA Ambala and other analysts have recommended five oil stocks that could benefit from the current market conditions, urging investors to take advantage of the lower prices to build their portfolios.
1. Gandhar Oil Refinery
Gandhar Oil Refinery has been identified as a promising investment opportunity by Ambala. Currently trading at ₹216, Gandhar’s Price-to-Earnings (PE) ratio of 16.04 is lower than the sectoral average of 18.32, suggesting that the stock may be undervalued. Ambala advises investors to buy Gandhar shares within the range of ₹210 to ₹215, with target prices of ₹228, ₹235, and ₹250. A stop-loss order at ₹200 is recommended to manage risk.
2. Oil India Limited
Oil India Limited has also caught the attention of analysts. According to Sugandha Sachdeva, Founder of SS WealthStreet, Oil India shares have gained approximately 135% year-to-date, despite a significant correction from their August peak of ₹767.90. The stock is showing signs of stabilization following the surge in crude oil prices due to the Israel-Iran conflict. Sachdeva recommends accumulating Oil India shares, with a target price of ₹665 to ₹680, and advises investors to watch the ₹510 support level.
3. Petronet LNG
Petronet LNG is another stock that analysts believe holds potential in the current market. VLA Ambala noted that the stock’s momentum is currently strong, making it an attractive investment option. Trading within a buying range of ₹340 to ₹350, Petronet LNG is expected to reach price targets between ₹370 and ₹430. Ambala advises holding the stock for one to ten weeks, with a stop-loss order at ₹310.
4. Bharat Petroleum Corporation Limited (BPCL)
BPCL has experienced significant volatility, with its current share price trading at ₹340. However, analysts believe the stock may experience further corrections in the short term. Ambala recommends that investors buy BPCL shares within the range of ₹310 to ₹290, with potential price targets of ₹365 to ₹450. A stop-loss order at ₹265 is advised for those looking to manage their risks effectively.
5. ONGC
ONGC is considered a promising mid-term investment by Ambala, particularly after a recent correction of 10-15%. ONGC’s PE ratio of 8.33 is significantly lower than the sectoral average of 17.11, making the stock an attractive option for investors. Ambala recommends buying ONGC shares within the range of ₹276 to ₹255, with target prices of ₹310 to ₹370. Investors should set a stop-loss order at ₹240 to protect against further market volatility.
Long-Term Outlook for Oil Stocks
Despite the current challenges facing oil stocks, many experts remain optimistic about the sector’s long-term prospects. As the situation in the Middle East unfolds, there is potential for oil stocks to recover quickly once tensions ease and crude oil prices stabilize.
For investors willing to weather the current volatility, this period of uncertainty may offer significant opportunities for growth in the oil and energy sector.
