Brokerage sees GAIL as best bet to buy; stocks up over 6% on Wednesday after oil hits USD 110 mark

With the crude oil price touching its all-time high since 2014, the domestic brokerage firm Kotak Institutional Equities see oil exploration and production companies benefiting by the rise. The Brent Crude on Wednesday breached $110 per barrel levels while WTI Crude near $110 per barrel. 

The surge in the crude prices is due to tense geopolitical situations in Russia and Ukraine. The oil prices to remain volatile and rise from current levels if these concerns do not ease in the near term and the OPEC+ cartel does not materially increase production to ease a tight market, brokerage said.  

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Kotak equities reiterate positive view on GAIL as it benefits from a rise in profitability of LPG (Liquid Petroleum Gas) production and LNG marketing segments; elevated spot LNG prices in comparison also augur well for the latter.  

“We maintain our negative view on upstream companies for now despite higher leverage of profitability to oil prices as the stocks already factor elevated prices sustaining in FY2024E, while production and operational trends provide no comfort,” the brokerage house said in report. 

The shares of the company gained over 6 per cent to touch day’s high level of Rs 153.65 per share on the BSE as compared to 1.85 per cent decline in the S&P BSE Sensex on Wednesday. 

Besides GAIL, the other oil marketing companies such as ONGC, Oil India, HPCL, BPCL also gained during Wednesday’s session up to 10 per cent on the BSE intraday. 

The rise in the crude price is adversely negative for the country’s growth amid India being majorly dependent on the oil.  

Higher oil prices pose risks to external stability and currency movement, will also impact inflation and fiscal situation, Bank of Baroda said in a research report on Wednesday. 

It further added, “Apart from the direct impact of higher prices on inflation, pass-through effect on other sectors may not be transitory as expected by the Reserve Bank of India, and the government may have to calibrate its fiscal stance given the rising yields.”