Shares of upstream oil companies such as Reliance Industries Ltd (RIL), Oil & Natural Gas Corporation Ltd (ONGC), and Oil India Ltd gained in Friday's trade after the government reduced windfall tax on crude further to ₹1,700 per tonne from ₹4,900 per tonne, on Thursday. The revised tax came into effect from today.
ONGC and Oil India gained 2 percent to hit a 5-month high while RIL rose 1.5 percent during the trading session. However, the stocks pared gains with RIL and ONGC closing lower by 0.53 percent and 0.14 percent, respectively, and Oil India closing higher by 0.78 percent.
The government reduced the windfall tax in line with the movement in the international oil prices which have been sliding lately.
Whenever an upstream oil company makes inordinate profit, due to sharp rise in oil prices, the government steps in to curb extraordinary and unnatural gains. A windfall gain tax is levied. And when the prices of oil come down, the windfall tax gets removed to restore normal profitability.
"The reduction in windfall tax on crude oil has ensured that the realisation of upstream companies has remained healthy at about $75/bbl. The overall collection from crude oil production is expected to be about 190 billion rupees and from downstream about 200 billion rupees," said Prashant Vasisht, Vice President & Co-Group Head - Corporate Ratings, ICRA.
Analysts have a positive view on ONGC, as according to them, the stock has been an outperformer. "With strong weekly candlestick, we expect this positive momentum to continue in the coming week towards 157 level. The immediate support being 143 level," said Rajesh Bhosale, equity technical and derivative analyst, Angel One.
Similarly, analysts believe the chart structure of Oil India is positive and said it may extend upmove in the coming week towards ₹225 level. the immediate support for the stock is at ₹205 level. Dips can be considered as a buying opportunity, it says.
However, according to analysts, Reliance Industries is under pressure since last week, and further downside can be expected in the coming week.
"Next support is at 2,550 level that coincides with 200-day simple moving average, and previous low, if that holds then we may expect a bounce back or else the stock will continue to slip lower," added Bhosale.
According to Mintgenie poll, 31 analysts on average recommend ‘buy’ rating for Reliance Industries, 25 analysts on average recommend ‘buy’ rating for ONGC, whereas 16 analysts on average recommend ‘strong buy’ for Oil India.