Navigating Election Tides: OMCs’ Profit Landscape Amidst Stock Market Volatility

As India gears up for elections, a familiar question that arises is what will happen to the important Oil Marketing Companies (OMCs)? It is well-known that these companies play the utmost role in the nation’s transportation sector. During elections, OMCs are one of the most discussed topics.

Since October 2023, the share price of these OMCs, which includes Hindustan Petroleum Corp Ltd, Indian Oil Corporation Ltd and Bharat Petroleum Corporation Ltd, has seen good growth.

Performance of the 3 State-Owned OMCs

Indian Oil Corporation Ltd (IOCL): IOCL reported a standalone net profit of ₹8,063.39 crore in October-December 2023-2024, which was higher than ₹448.01 crore profit in the same period a year ago but lower than ₹12,967.32 crore profit in the previous three months ended September 30, 2023.

Hindustan Petroleum Corp Ltd: Similar to IOCL, Hindustan Petroleum Corp Ltd reported a standalone net profit of ₹529.02 crore in the 3rd quarter of 2023-24. Though the profit was higher than ₹172.43 crore profit in the same period a year ago, it is lower than ₹5,118.16 crore profit reported in the 2nd quarter, which ended September 30, 2023.

Bharat Petroleum Corporation Ltd (BPCL): In the case of BPCL, the company reported a standalone net profit of ₹3,397.27 crore in the period ended December 31, 2023, which was higher than ₹1,959.58 crore profit in the same period a year ago but lower than ₹8,501.17 crore profit in the period ended September 30, 2023.

The three state-owned firms have reported a combined profit of more than ₹69,000 crore in the first nine months of the current fiscal, i.e., FY 2023-2024.

According to market analysts, the three PSU oil marketing companies – Hindustan Petroleum Corp Ltd, Indian Oil Corporation Ltd and Bharat Petroleum Corporation Ltd are expected to continue making a profit till the oil price remains below $85 a barrel. However, the stocks of these companies are highly volatile. Here’s a table to understand the volatility of these stocks.

Note: The stock prices listed here are as of March 12, 2024, at 12:15 PM.

The general election of 2024 is igniting the hopes of a cut in petrol and diesel prices soon, which could be causing the stock prices of these OMCs to fluctuate. In India, since May 2022, fuel prices have remained steady, following a reduction in fuel taxes by the central government and several states. Government officials suggest that changes in fuel prices can be anticipated if the global crude prices fall below $80 per barrel and remain stable. They are also keeping an eye on the emerging geopolitical situations. As of March 12, 2024, 12:30 PM, the Brent Crude price is at $82.04. It is also to be noted that this year, i.e., in 2024, about 60 countries globally are set for national elections, including India, the USA, Russia, the UK, etc.

Due to the Russia-Ukraine war, the Indian basket of crude prices shot up by an average of 18 per cent in 2022-23 to $93.15/barrel compared with $79.18/barrel in 2021-22. This has led to huge marketing losses by OMCs as they could not pass on the prices to consumers. In May and June 2023, the Indian basket averaged $74-75/barrel and $80.37 in July before increasing to $93.54 in September. It has since moderated to $90.08 in October, $83.46 in November and $79.22 in January 2024. Overall, election years, historically, have been volatile years for markets.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.