3 Stocks to Watch in the Prospering Oil & Gas Sector

The oil and gas sector, one of the eight major industries in India, plays a key role in economic growth. The rising curve of energy demand, in turn, increases the need for oil and gas, thereby attracting investments and stoking economic growth. Globally, India is recognized as the third-largest consumer and importer of oil as of 2021 after the U.S. and China. 

Developments in the Sector 

Per an IEA (India Energy Outlook 2021) report, primary energy demand is projected to almost double to 1,123 million tonnes of oil equivalent on the expected rise in India’s gross domestic product (GDP) to $ 8.6 trillion by 2040. 

According to the Organisation of Petroleum Exporting Countries (OPEC) oil report, India’s demand for oil products is forecast to increase from 4.77 million barrels per day (bpd) in 2021 to 5.14 million bpd in 2022. For 2023, OPEC estimated India’s demand growth in the range of 4.67% to 5.38%. 

Remarkably, from April to August, India recorded the highest percentage level ever in the export of petroleum products at 21.2%. This was driven by high global energy prices and better-priced crude oil from Russia. 

Notably, the healthy economic growth, improving economy amid easing of COVID restrictions, and removal of trade-related curtailments have created the demand for petroleum products in India as well. 

India imports more than 85% of its crude oil needs. The rise in crude prices raises input costs, which in turn, increases prices for consumers in terms of retail prices for petrol, diesel, and other petroleum products increasing inflationary pressure, while upstream oil companies gain. 

Notably, despite recent volatility in crude oil prices amid fears of recession, demand-supply imbalance, and other macroeconomic factors, retail prices of fuel in India have mainly remained unchanged for consistent four months now, thanks to oil-producing companies and government support. 

Overall, the prospects of the oil and gas sector seem to be bright amid high fuel demand despite changing regulations and related risks. 

Some Big Industry Players to Watch On 

Reliance Industries Limited (RIL) 

Mumbai-based Reliance Industries Limited is an Indian multinational conglomerate company. It deals in energy, petrochemicals, natural gas, retail, telecommunications, mass media, and textiles. In Q1 FY2023, the company recorded revenues of about Rs 3,625 crores in the oil and gas segment. With a market cap of Rs 17 lakh crores and a one-year return of 3.45%, RIL can be considered a long-term bet based on its strong fundamentals.

Oil and Natural Gas Corporation (ONGC) 

Maharatna company ONGC is the biggest crude oil and natural gas entity in India, which contributes about 71% to Indian domestic production. The company stands out as the largest exploration and production (E&P) company globally and one of the highest profit-making and dividend-paying firms. ONGC has in-house service capabilities in all areas of E&P of oil & gas and related oil-field services. As of June 30, 2022, the company’s gross revenue stood at Rs 42, 321 crores. The company holds a market cap of Rs 1.64 lakh crores and has provided a one-year return of 1.52%. As a result, based on the current dividend yield of above 8% and strong fundamentals, this stock can be attractive to income-oriented investors. 

Hindustan Petroleum Corporation Limited (HPCL) 

HPCL is an Indian oil and gas refining company headquartered in Mumbai. Since 2018, a majority stake in the company has been owned by ONGC. The company operates various subsidiaries and has formed joint venture companies in multiple areas including Oil Refining and Petrochemicals, Marketing of POL Products, Natural Gas Pipelines, LPG Pipelines, City Gas Distribution (CGD), and Biofuels among others. For the quarter that ended June 30, revenue from operations came in at Rs 1,21,449 crores. The stock holds a market cap of Rs 32.46 thousand crores and is hovering near its 52-week low. As a result, investors buying the dips can add this stock to their portfolio, considering the current dividend yield of more than 6% as favorable.