With crude oil prices falling about 18 per cent since end-September, the best way to play it is through shares of oil marketing companies namely Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation Ltd (IOC), Emkay Global said in its latest note, adding that there are also knock-on benefits for two-wheeler players such as Hero MotoCorp Ltd and TVS Motor Ltd.
“The direct impact is on the energy sector, with divergent outcomes for various segments. OMCs are the biggest beneficiaries (barring short-term inventory losses), which fits into our overall positive view on the stocks that are seeing tailwinds and are supported by attractive valuations. Upstream companies lose the most, though below windfall tax and gas price cap hurdle rate of $75 per barrel and $65 per barrel, respectively,” Emkay Global said. The brokerage has BPCL as its favourite OMC stock.
Emkay Global said lower oil prices are positive for auto-fuels and the LPG retail business. Every $1 per barrel decline leads to a Re 50 paisa expansion in margin. “However, in the intermediate period, this would lead to inventory losses and any cut in retail prices could be a sentiment dampener in the near term,” Emkay Global said.