ONGC, RIL, HPCL: Nifty Oil & Gas slips 1%; check reasons, recommendations

Business Standard

4 days ago

Oil & gas-related stocks were under pressure in trade on Tuesday, August 5, 2025. On the National Stock Exchange (NSE), the Nifty Oil & Gas index declined 1.3 per cent to day's low at 11,001.25.
Last checked, 12 out of 15 stocks were trading with losses on Nifty Oil & Gas. Among others, Mahanagar Gas was down 2.9 per cent, Hindustan Petroleum Corporation 1.57 per cent, Petronet LNG 1.54 per cent, Reliance Industries (RIL) and Gail India were down 1 per cent.
Why are oil & gas stocks falling?
The sell-off in the stocks came after US President Donald Trump on Monday stepped up pressure on New Delhi, threatening to 'substantially' raise tariffs on inbound shipments from India over the purchase of a 'massive' amount of Russian crude oil.
'India is not only buying massive amounts of Russian oil, they are then, for much of the oil purchased, selling it on the open market for big profits. They don't care how many people in Ukraine are being killed by the Russian war machine. Because of this, I will be substantially raising the tariff paid by India to the US,' he wrote on Truth Social.
India imports a third of its total crude from Russia, making the country New Delhi's largest crude supplier. India is also the second-largest buyer of Russian crude, after China. India imported about 1.75 million barrels per day of Russian oil from January to June this year, up 1 per cent from a year ago, according to news agency Reuters.
Responding to Trump's statement, the Ministry of External Affairs (MEA) called the move 'unjustified and unreasonable.' The ministry stressed that India's energy ties with Russia are driven by national "necessity" and are far smaller in scale compared to trade between Russia and the West.
How will India's stoppage of Russian crude imports hit Oil & Gas companies?
JM Financial Institutional Securities believes that if India stops importing crude oil from Russia, it could hit Indian refiners' gross refinery margins (GRM) by $1-1.5 per barrel, as the Russian crude discount is $3-4 per barrel.
Additionally, Russian crude constitutes 30-40 per cent of India's crude requirement. Every $1 per barrel will have a negative impact on FY26 Earnings before interest, tax, depreciation and amortisation (Ebitda) of— 8-10 per cent for oil market companies (OMCs); 20-25 per cent for Mangalore Refinery & Petrochemicals/Chennai Petroleum Corporation; and 2 per cent on RIL's consolidated Ebitda.
What to do with oil & gas stocks?
JM Financial has maintained a 'Sell' rating on Hindustan Petroleum Corporation (HPCL) and Indian Oil Corporation (IOCL). The brokerage has reiterated its 'Hold' call on Bharat Petroleum Corporation (BPCL). JM sees the risk-reward not favourable for HPCL, BPCL and IOCL, given their aggressive capex plans, valuations being 10-30 per cent above the historical average (at 1.4x FY27 PB for HPCL/BPCL and 0.9x FY27 PB for IOCL) and risks to sustainability of current high marketing margin.
On Oil and Natural Gas Corporation (ONGC) and Oil India, the brokerage has maintained 'Buy' as it believes they are key beneficiaries of high crude price, while their current marlet prices are discounting $60 per barrel crude realisation; every $1 per barrel higher oil price boosts their consolidated earnings per share (EPS) by 1.3-1.8 per cent.