GOLDEN RULES FOR TRADING

Oil Stocks Outlook for the week – 27.06.2016 to 01.07.2016, PSU refiners may outperform market; crude price eyed

Oil Stocks Outlook for the week – 27.06.2016 to 01.07.2016, PSU refiners may outperform market; crude price eyed

Stocks of state-owned oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd, and Hindustan Petroleum Corp Ltd—are likely to trade with a positive bias next week, and are seen
outperforming the broad market which may witness volatility in the aftermath of 'Brexit'. Capital
markets and prices of crude oil plummeted globally yesterday as the UK citizens voted in favour of
the country exiting the European Union. The renewed weakness in prices of crude is seen helping the
state-owned oil marketing companies given that crude oil is their primary input. On the other hand,
analysts continue to maintain a bearish view on upstream companies--Oil and Natural Gas Corp Ltd,
Oil India Ltd, and Cairn India Ltd.

Prices of crude oil and trend in the broad market will influence the trend for upstream as well as
downstream oil companies over the next few sessions. Brexit should be credit positive for the Indian
refining and marketing industry, as crude oil prices are expected to remain subdued in the near term
due to heightened uncertainty about demand growth in the EU region. This should translate to low
under recoveries and working capital borrowings. On the likely trend for prices of crude oil in the next few days, While concerns about Britain remain key price-determining factor, also weighing on crude price are demand concerns amid mixed economic data from major economies and possibility of better supply from Nigeria following truce.

Data released earlier this week showed a less-than-expected weekly decline in US crude stockpiles,
leading to renewed concern about oversupply. A slump in global and domestic equities, coupled with
strength in the US dollar against the euro, may also weigh on prices of crude oil. A stronger dollar
will also hit downstream companies as they primarily depend on imported crude, while providing
some support to oil-producing companies. While the major impact of the UK's decision to leave the
EU was absorbed yesterday, Indian equity markets could still continue to be in a correction mode
over the next couple of weeks. There may be some correction in downstream stocks if the market
shows weakness over the next few sessions. However, the stocks look fundamentally strong and
even with any such correction; they are likely to outperform the market.

Apart from the impact of 'Brexit', what is also likely to add to the volatility next week is that traders will roll over positions to the July derivates contracts ahead of the expiry of June series on Thursday.