Investec has downgraded all three oil marketing companies — BPCL, HPCL and IOC — to sell from hold, cautioning that the sharp rally in OMC stocks is overlooking a significant risk emerging beneath the surface of the refining upcycle. The brokerage said investor interest in OMCs has risen rapidly over the past two months as Singapore gross refining margins (GRMs) have doubled to nearly USD 13 per barrel, but it argued that this metric captures only part of the earnings picture for these companies.
The bigger concern, Investec said, lies in the deterioration of marketing margins — the single most dominant driver of OMC profitability. The same surge in diesel cracks that is boosting global refining benchmarks has simultaneously pulled diesel marketing margins into negative territory. According to Investec, diesel marketing margins have slipped from around ₹4 per litre a month ago into a negative zone, despite soft crude prices, materially weakening the overall earnings outlook for the sector.
Investec emphasised that if elevated diesel cracks persist, the impact on OMC earnings could be substantial, especially at a time when valuations have already expanded meaningfully. The brokerage noted that OMC stocks have risen 20–25% since October 2025, suggesting the market may be overlooking the downside risks stemming from margin compression and volatility in product spreads. In its sector call, Investec advised investors to play the refining upcycle through Reliance Industries instead, given its integrated portfolio and lower dependence on fuel marketing spreads.
Reflecting its cautious stance, Investec assigned sell ratings across the board with revised target prices: BPCL at ₹330, HPCL at ₹425, and IOC at ₹145.
Disclaimer: The views and recommendations above are those of Investec. Business Upturn does not endorse them. Please consult a financial advisor before making investment decisions.