By Admin 
Share Crash: There has been a huge decline in the shares of Indian Oil Marketing Companies (OMCs) i.e. IOC, BPCL and HPCL in recent times. Experts believe that there may be a further decline of up to 20 percent. The reason behind this is the rise in crude oil prices in the international markets, due to which the pressure on the balance sheets of these companies is increasing.
The Strait of Hormuz is closed due to the ongoing war between Iran, Israel and America. This is the route from where up to 20 percent of crude oil is supplied to all the countries around the world. India imports more than 40 percent of its oil needs. In such a situation, in recent times, due to attacks on energy infrastructures in the countries of the Middle East, the prices of Brent crude futures have crossed $ 100 per barrel. Till some time ago the prices had crossed almost $ 120 per barrel. Due to this, a big decline is being seen in the shares of Indian oil marketing companies.
Impact on profits of OMCs
OMCs’ marketing margins reduce due to increase in global crude oil prices. This means that the profit made on selling oil reduces. OMCs work on a counter-cyclical leverage model. That is, when losses or margin pressure increases, debt increases rapidly to handle working capital and under-recovery.
According to Equirus Research, this further increases the risk that if marketing losses continue without any change in prices in the current bullish phase of crude oil, then the balance sheet may again come under significant pressure due to increasing debt levels.
Government policies are also responsible
The government has recently reduced the prices of petrol and diesel by Rs 2 per liter. This has also affected the profits of companies. This cut was made at an interval of approximately 22 months. Oil prices had remained stable since May 2022. Due to low retail price, the profit per liter of oil companies reduces. On top of this, if the companies have already purchased crude oil stock and now they have to sell it at a cheaper rate, then they also have to bear a separate ‘inventory loss’.
advice for investors
If you are thinking of investing in these shares, then first keep an eye on the government announcements regarding the price of crude oil. Experts say that unless margins improve, there will be huge fluctuations in stocks. Meanwhile, brokerage firm Kotak Institutional Equities has given ‘Sell’ rating to the shares of these companies.
Disclaimer: (The information provided here is being given for information only. It is important to note here that investing in the market is subject to market risks. Always consult an expert before investing money as an investor. ABPLive.com It is never advised for anyone to invest any money here.)
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