Shares of Indian Oil Corporation declined sharply on Monday, March 9, after brokerage firm UBS downgraded Indian oil marketing companies amid rising uncertainty in global oil markets.
As of 9:32 AM, Indian Oil was trading at Rs 157.92 on the NSE, down 6.38% or Rs 10.76 from the previous close of Rs 168.68. The sharp decline reflects broader selling pressure across oil marketing companies (OMCs) such as Bharat Petroleum Corporation and Hindustan Petroleum Corporation.
UBS downgrades OMCs amid oil market uncertainty
UBS said geopolitical risks are clouding earnings visibility for India’s oil marketing companies as crude oil prices surge due to escalating tensions in the Middle East.
In its latest report titled “OMCs: downgrade on oil market uncertainty,” the brokerage downgraded Indian Oil and Bharat Petroleum to “Neutral”, while cutting its rating on Hindustan Petroleum to “Sell.”
UBS also lowered its valuation multiples and reduced price targets for these companies, citing uncertainty in earnings outlook as crude prices remain volatile.
Rising crude prices pose margin risks
The brokerage noted that oil marketing companies are negatively exposed to rising crude oil prices because of their large marketing operations.
While refining margins may improve when crude prices increase, marketing margins for petrol and diesel tend to decline if retail fuel prices are not adjusted quickly enough.
UBS estimates that every $5 per barrel increase in crude prices could significantly impact profitability if the costs are not passed on to consumers through higher fuel prices.
Geopolitical tensions driving oil rally
The surge in crude prices has been triggered by escalating tensions in the Middle East, particularly the ongoing conflict involving Iran and Israel.
Concerns about disruptions in the Strait of Hormuz, a key global oil transit route, have added to market volatility and pushed crude prices sharply higher.
For India, which imports nearly 85% of its crude oil requirements, such price spikes can have a direct impact on oil marketing companies’ cost structures and profitability.
Sector under pressure
UBS also warned that the higher marketing exposure of Indian oil marketing companies makes them more vulnerable to rising crude prices.
The brokerage reduced its FY27 earnings estimates for Indian Oil, Bharat Petroleum and Hindustan Petroleum, citing weaker marketing margins and uncertainty in fuel pricing.
Indian Oil’s share price decline reflects investor concerns that sustained crude price volatility could weigh on near-term earnings for the company and the broader OMC sector.
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