GOLDEN RULES FOR TRADING

Oil Stocks Outlook for the week – 19 to 23.09.2016 Shares of retailers seen down on steep valuations

Oil Stocks Outlook for the week – 19 to 23.09.2016
Shares of retailers seen down on steep valuations

Stocks of state-owned oil retailers are expected to correct next week as sharp gains in the last few
months have made their valuations expensive. Stocks of Indian Oil Corp, which has risen 45% in the
last six months, is seen neutral-to-negative on charts. Indian Oil shares yesterday ended 570.20
rupees on the National Stock Exchange. However, over a longer term, the stock is still the preferred
pick for most analysts. They expect India's largest oil retailer to be the biggest beneficiary of
improvement in demand for petroleum products.

The company offers advantage of scale in refining, petrochemical and marketing business, and its
new projects will improve the efficiency. Among the explorers, Oil and Natural Gas Corp is the
preferred pick as most analysts believe that the valuations of the stock are cheap. Even if crude oil
prices were to decline, it would not impact the stock, which factors in realisations at a very low price
of crude oil. At 1915 IST, the November futures contract of Brent crude oil was at $45.66 per barrel
on the Intercontinental Exchange in Europe, down nearly 2%.

Reliance has been trading below 1150 rupees since January 2010 and the success of Reliance Jio
Infocomm will be crucial for a breakout from this level. The fate of Cairn India stock is linked to
 Vedanta Ltd, into which it will be merged. Cairn India is now an arbitrage play with Vedanta, the
fundamental analyst mentioned earlier said. Apart from crude oil prices, fluctuation in the dollarrupee
exchange rate is also likely to affect shares of oil companies. If the dollar strengthens against
the rupee, it will hit refining companies and benefit upstream players. A weak dollar, on other hand,
is advantageous to downstream companies.