Technicals, strong price seasonality hint that OMCs within inches of marking all-time high: JM Financial

In its report JM Financial pointed that technicals and strong price seasonality which OMCs show in May are suggestive of possible bullish moves in oil-marketing companies.

The brokerage report said that the ratio of an equal weighted basket of OMCs i.e. HPCL, BPCL and IOC vis-a-vis Nifty has declined from a high of 0.3004 level as observed on February 15 to a low of 0.246 levels as observed on March 19, 2024, suggesting an underperformance of -18 per cent.

In the last 1.5 months, the ratio has been consolidating in the range of 0.246-0.2636 levels. It witnessed an upside breakout of the range last Friday, indicating strength to prevail.

Also, the ratio has a strong support at around 0.24 levels as it coincides with previous breakout levels of 4 years of the consolidation range as observed during the period March 2020 to January 2024.

Price seasonality factor

OMCs historically in the month of May have closed higher. As per data, in the last 10 years, BPCL, HPCL and IOCL have closed higher on 8, 8 and 5 occasions with an average return of 4 per cent, 5 per cent and 6 per cent, respectively. In comparison, Nifty on an average has moved by 2 per cent.

Cumulative futures open interest positioning on the lower side

The May series has started on the back of lower than actual cumulative future open interest in the overall sector suggesting lower risk of any significant profit booking to creep into the trades.

Technical analysis

All the stocks in the basket are breaking out of the consolidation range suggesting more strength to prevail. Furthermore, as the brokerage sees crude to test the lower trendline which is placed at around 84.5 levels, OMCs are seen to post a probable upside as has been seen in the past occasions when crude moves downward.