Key crossover hints at more gains for ONGC

Mumbai: Oil and Natural Gas Corporation (ONGC), a late entrant in the Dalal Street’s recent bull party, is showing promise after moving in a tight band in the past six months. Analysts said shares of the oil explorer, which soared 6.2 per cent to Rs 80.80 in a weak market on Wednesday after global crude prices firmed, broke past key technical hurdles in the trading session. Now, the stock is poised to advance as much as 15 per cent soon.ONGC shares crossed a crucial obstacle of Rs 77.40 — its 200 Day Moving Average (DMA) — on Wednesday. When a stock or an index breaks above the 200-DMA, it is said to be in a long-term bull trend and vice versa. “The ONGC stock after a sharp underperformance on an absolute basis now staged a breakout of its 200-DMA (daily moving average) of Rs 77.40,” said Sandeep Porwal, technical analyst, Ashika Stock Broking. “The sustainable swings above the Rs 77 shall result in a continuation of rally up to the Rs 86 and Rs 93; while it’s key support is placed at Rs 75.”ONGC is one of the cheapest stocks on the Nifty with a high dividend yield of 7 per cent. The shift in investor interest to value stocks has helped the stock shrug off its recent lethargy, with the share gaining 14 per cent in the past three trading sessions on higher volumes. About 6 crore ONGC shares were traded on an average in the past three days compared to 1.86 crore shares traded daily in the preceding 30 days. 79419261“Mean risk-reward is favourable for ONGC investors with attractive valuations and a combination of a likely change in gas pricing policy and downstream restructuring,” said Pinakin Parekh, analyst, JP Morgan.“ONGC is finally moving to simplify its downstream assets, which is a positive.”Oil prices, which have stabilized in the $40-45 per barrel range, rose about 4 per cent to $ 47.86 per barrel on Tuesday—a nine month high after the third breakthrough in coronavirus vaccine raised hopes of economic activity coming back on track. The stock has risen 33 per cent since March 23--when the market rebounded after the coronavirus-triggered sell-off—as against a 71 per cent advance in the Nifty.Analysts said ONGC’s crude subsidy burden has significantly eased following downstream sector reforms. Despite weaker oil prices of late, the company’s net realization has been protected due to a significant reduction in petroleum subsidies.“We believe ONGC will continue to benefit from the benign subsidy environment and its net realization will now closely track oil price,” said Jal Irani, analyst, Edelweiss Securities. “The proposed HPCL and MRPL merger is a good measure to optimise operations of its key subsidiaries, valuations are compelling at 4.3 times FY22 estimated price earnings ratio.”

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