OMC stocks likely to witness profit booking in short term: Deven Choksey

In a chat with ET Now, Deven Choksey, MD, K R Choksey Securities, shares his view on what falling crude prices globally mean to oil marketing companies (OMCs).

ET Now: With an assumption that crude stays at where it is, there a structural uptick established in OMCs. Are these businesses strong enough to lift OMC stocks?

Deven Choksey: As far as OMCs are concerned, over the next few quarters, there would be a situation when OMCs would start seeing an adverse effect of fall in crude oil prices.

The government follows the formula of adjusting the petro-product prices on a bimonthly basis. In such a situation, you might see the reduction in the petro-product prices first and, thereafter, OMCs would probably have an advantage of lower crude oil inventory coming into effect.

So if you look at purely from the diesel’s perspective, many OMCs might probably see the benefit of the fall in the crude oil prices. The benefits may not come in the immediate quarter, but in a subsequent period. So, that is an area which may disappoint some investors. That said, on a structural basis, I would think that if the crude oil prices remains on a lower side, it certainly helps most of these companies, the refiners.

The working capital-related requirements may come down and, at the same time, the margins would remain intact. This is a wonderful thing to happen for most of the companies. Traders in the market may probably have played the event of fall in the crude oil prices. Some more steam may be left.

I would think that there would be some amount of selling coming in the form on profit taking, some shorter duration from now. We will have to wait and see how exactly the market behaves.