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    Tuesday, 6 December 2016

    Energy sector stocks all fired up with low downside risks

    ET Intelligence Group: Whenever a structural shift in macro parameters is in progress, the conventional wisdom of a portfolio manager suggests a switch to stocks that have lower risk of an earnings downgrade in the near term.
    After demonetisation, India's energy sector has offered that succour to investors. It has reported maximum earnings upgrades in the past four weeks -thanks to favourable prices of crude oil and its derivatives.

    Enery Stocks
    According to data compiled by the ET Intelligence Group from Bloomberg, projected earnings of Oil and Natural GasBSE 0.39 % Cor poration (ONGC), Oil IndiaBSE 0.13 %, Petronet LNG, Indian Oil, and HPCLBSE 2.25 % have been upgraded in the range of 2.5-8% for the current fiscal.

    The lower downside risk in uncertain times is typically rewarded by the market with premium valuation as compared with its long-term average. This is the key reason energy stocks have outperformed Nifty by 8% since November 8.

    The projected earnings per share (EPS) of Indian Oil, India's largest oil marketing company , increased by 7% for FY17 to Rs 29.9 on December 6 as compared with Rs 27.9 prior to demonetisation. Similarly, GAIL's projected EPS inched up 7%.

    Projected earnings of upstream companies such ONGC and Oil India have increased following higher crude oil prices. In addition, the gov ernment has indicated that these companies will not have to bear any subsidy burden on LPG and
    Kerosene in the current fiscal.

    The biggest thrust to upstream companies earnings has been an improvement in their net realisation on crude oil after OPEC and non-OPEC members planned to cut crude oil output by 1.8 million per day.

    Petronet LNG's EPS is upgraded due to higher utilisation of its Dahej terminal and robust LNG offtake in the past few months. For oil marketing companies such as IOC, BPCL and HPCL, better gross refining margins due to higher realisation from fuel oil and LPG have triggered EPS upgrade.






    ET Intelligence Group: Whenever a structural shift in macro parameters is in progress, the conventional wisdom of a portfolio manager suggests a switch to stocks that have lower risk of an earnings downgrade in the near term.

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