Stock market investors must be having a good time. And they have every reason to be happy. The market has been taking new heights. Stock Market has bounced back after the May 18, 2006 downfall which ate into the valuations of the scrips. Supported by strong quarterly results, the valuations of stocks are climbing up. But I am more concerned about the Oil Companies which are not giving decent gains to the investors. I am talking about the Oil Majors, namely, IOCL, BPCL, and HPCL I intend to discuss with you the performance of these scrips over the last few months.
For the purpose of discussion I would like to compare the ‘Oil’ scrips with my own favorite stocks as mentioned in Table 1 which shows the closing values of the Index & the scrips on the mentioned date.
31-Aug-06 23-Nov-06 % change
SENSEX 11699.1 13680.83 16.94
IOC 495.05 509.25 2.86
BPC 362.8 375.85 3.6
HPC 277.95 318.5 14.6
RIL 1117.6 1271.4 13.76
SBI 930 1253.3 34.76
NTPC 124.2 141.95 14.3
BHEL 2260.95 2516.8 11.32
GMR Infrastructure* 214.6 372.65 73.65
Tech Mahindra* 539.95 1147.8 112.58 Suzlon 1203.35 1496.15 24.33
TCS 996.05 1144.15 14.87
Infosys Tech. 1808.8 2231.35 23.36
Adani Enterprises 119.8 183.8 53.42
Table 1 * Recent IPOs
As is clear the Sensex has moved up by a good 17% during this time. Any scrip which gives me return nearly equal to that of the Index return is good for investment prospects. That makes a good ‘hold’ of the scrip or otherwise I should think of ‘buy’ of that scrip.
The story starts here with a look at the returns of the ‘Oil majors’ in the mentioned period. IOC & BPC are giving very poor returns as compared to the other stocks. Only HPC has given returns which are comparable to that of the Index. Recent IPOs like Tech. Mahindra & GMR Infra. have given excellent returns over the same period. I would rather prefer these IPOs to HPC as they are characterized with high liquidity and volatility during their initial life after listing. Moreover, more than often the ‘Oil’ scrips have moved in opposite direction to that of the Index during intra-day trading. That makes my investment more vulnerable as normally I would like to gain with the growth of the Index i.e. Sensex. This renders my gains at a very slow pace as intra-day gains are hard to come by.
Table 2 shows P/E ratio of the Scrips under discussion. If there is one number that people look at more than any other it is the Price to Earning Ratio (P/E). The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. The Sensex P/E at 22 is not over-valued; it’s a good one for further investment. The giants like RIL, SBI have very good P/E values. Values as high as those of Software Companies is a common trend in the industry. Even others like NTPC, Adani, BHEL, Tech. Mahindra are good enough as an invitation for investors to park their money. Certainly GMR Infra. looks over-valued, however it also indicates that the market has high hopes for this stock’s future and that has bid up the price.
The lowest P/E values are those of the Oil Majors. The point is that low P/E values are a source of discouragement for the investors. This sends an indication that the investors don’t have much expectation from future earnings from these scrips. Certainly not a good sign for an investor having these scrips in his portfolio. Neither does this should invite fresh investors in these scrips.
P/E
SENSEX 22.51
IOC 6.7
BPC 11.1
HPC 7
RIL 18.6
SBI 16.7
NTPC 18.4
BHEL 31
GMR Infrastructure 100.8
Tech Mahindra 20.3
Suzlon 36.3
TCS 30.6
Infosys Tech. 40.3
Adani Enterprises 22.6
Table 2. As on Nov. 23, 2006 closing
Having said so far we should move a step ahead, let’s see the extreme levels of the Index & Scrips in last one year. Table 3 shows us by what amount the Index & scrips are lagging behind the highest levels and how much above they are from their lowest values recorded in the last 52 weeks. Sensex is trailing its 52 week high by a margin which is not that high. Such differences often come during Intra-day trading. Companies like RIL, SBI, NTPC, BHEL, GMR Infra. & others down the Table are almost touching their highest values recorded during trading. Tech. Mahindra shows the typical nature of a new IPO. Supported by a good P/E ratio, there is a lot of buying & selling activity associated with this scrip.
The problem again is with the Oil Majors. They are far away from their highest values. In this time when the market is taking new high values within a few trading days, it is not desirable for the Oil majors to miss the race. Certainly they are not a good game for investment. I would rather ignore such slow & steady gains when the market is already ripe to make quick bucks by investing in my favorite stocks.
23-Nov-06 52 Week High 52 Week Low
SENSEX 13680.83 13790.82 8655.14
IOC 509.25 622 310
BPC 375.85 503 291
HPC 318.5 361 206
RIL 1271.4 1316 580
SBI 1253.3 1263 684
NTPC 141.95 145 91
BHEL 2516.8 2552 1316
GMR Infrastructure 372.65 380 205
Tech Mahindra 1147.8 1214 521
Suzlon 1496.15 1510 739
TCS 1144.15 1175 728
Infosys Tech. 2231.35 2401 1225
Adani Enterprises 183.8 199 48
Table 3
Tuesday, January 23, 2007
Monday, January 22, 2007
Emerging domestic and international scenario in Oil & Gas sector
Oil as the chief driver of economy needs no special mention. As a composite product the position of oil deserves special attention with respect to its importance in macro-economic & micro-economic applications which extend to our day to day life. Time has come to such a pass that oil has been on the discussion tables of not only the economists across the world but also in households. Much has been discussed about the past events, primarily those leading to high oil prices which have the potential to mark a dent on any emerging economy and can also puncture a consumer’s pocket. In view of the above stated implications the focus rightly shifts to the emerging scenario in Oil sector across the nation and also the world. Of quite some time Gas has emerged as the most economical and environment friendly fuel which can replace oil in industrial, commercial and residential applications primarily due to its plentiful availability. As such any discussion encompassing oil covers the gas sector also by default.
If we scour through projects announcements, there are signs that we’re headed for a capex boom. These include not only capacity augmentation projects but also addition of new capacities. The total refining capacity in India is expected to go up to 260 mmtpa by 2015-2117. Moreover the demand of petroleum products would also be around 280-300 mmtpa by this period. Not only the companies will have to become extremely capital efficient but also the magnitude of fresh capital that needs to be brought in speaks of huge demand that can be gobbled up by upcoming industries across different sectors of the economy. The announced projected capital investment in petroleum products & refining and electricity & energy from FY06 to FY11 is at Rs. 44,880 and 2,69,303 crore respectively. Economists are also pursuing integration of O&G sector with Power sector. It becomes imperative to develop an approach which leads to timely completion of energy projects or we might lose the opportunity to tap the potential offered by gas in view of its escalating prices. The marketing margins will continue to pose challenges; as such the companies will need to support their marketing activities through a slew of innovative ancillary activities.
Keeping in view the volatility associated with oil prices the focus of companies will need to develop efficient price-risk management strategies. More and more crude will have to be sourced from spot markets.
Nations with untapped potential are moving towards self-reliance in terms of sourcing their crude needs. For those without any substantial indigenous crude diversified sources of supply will have to be sought. Emerging economies like China, India will be the main drivers of oil demand & hence oil prices too.
OPEC crude having life of another 150 years will continue to attract special attention from growing economies. It has to be accepted that non-OPEC crude will passover in the hands of major players which will serve the bigger nations leaving the developing nations at the mercy of OPEC. Relations with OPEC nations will have to be more inclusive and nations should pursue FTAs with OPEC to secure long term oil supplies. Light crude is slowly drying up and countries like Venezuela will assume more importance in the oil markets with a huge supply of (unofficial) heavy crude waiting to be tapped. Current prices of oil have also pushed up efforts in R&D of viable alternatives like CBM, gas hydrates, and oil shales. In short term we might see some production from these alternatives, though long term projections will definitely depend upon the oil prices in the coming time. The future E&P projects as well as refinery projects will have to face stricter environmental regulations and timely execution of the projects will hold key to success of the newer ventures.
India has an infinite demand for gas, which is projected to quadruple over the next 20 years. India is making enormous efforts to maximize the share of gas in the overall energy basket to meet its growing economic growth targets. As such various projects like LNG sourcing, pipelines feasibility and R&D in CBM are being taken up on priority basis. It needs to be mentioned that diversified supply sources will help rather than depending on a few producers. The indigenous gas market ought to be developed at a fast pace in order to decrease dependence on oil and also to find a ready market for the future gas supplies. Investing in pipelines and gas grids is the need of the hour. Gas pricing and regulatory issues will hold the key in developing the national gas market.
World natural gas consumption is projected to more than double in the next three decades. The share of natural gas in the world energy consumption is expected to increase to 28% by 2025. Gas demand is projected to grow most rapidly in Africa, Latin America and developing Asia. Again OPEC will prove to be a good supplier of gas in the years to come. Peaking oil has been shifting attention to gas of late and substantial markets have been developed. U.S. natural gas resources are on the decline while demand has been steadily growing at the rate of 1-2% annually. Recent natural gas price volatility has made analysts re-visit existing natural gas pricing models & contemplate newer concepts including price elasticity of demand. The attention will also shift on Russian reserves. Construction of transportation infrastructure is the major barrier to increased gas consumption. Investment in E&P, development of declining fields and LNG terminals will consume the bulk of investment in gas. Investments will have to come in risky political areas like Middle East, Algeria, T&T and Russia to name a few. European demand will be largely met by Russia. Alaska will do the same for U.S. in view of decreasing supplies from Canada. China is destined to be the fourth largest gas market by 2020 the frontrunners being USA, EU-25 & Russia. China’s current strategy of sourcing 65% of gas from domestic sources will need to be revisited in future considering its lack of technical, R&D, health & safety standards. By and large the vision for gas will depend enormously on the supply of vast sums of financial and intellectual capital.
LNG, the bulk of which will be used for power generation, will account for most of the increase in traded gas. OPEC countries will continue to dominate the supply of LNG.
If we scour through projects announcements, there are signs that we’re headed for a capex boom. These include not only capacity augmentation projects but also addition of new capacities. The total refining capacity in India is expected to go up to 260 mmtpa by 2015-2117. Moreover the demand of petroleum products would also be around 280-300 mmtpa by this period. Not only the companies will have to become extremely capital efficient but also the magnitude of fresh capital that needs to be brought in speaks of huge demand that can be gobbled up by upcoming industries across different sectors of the economy. The announced projected capital investment in petroleum products & refining and electricity & energy from FY06 to FY11 is at Rs. 44,880 and 2,69,303 crore respectively. Economists are also pursuing integration of O&G sector with Power sector. It becomes imperative to develop an approach which leads to timely completion of energy projects or we might lose the opportunity to tap the potential offered by gas in view of its escalating prices. The marketing margins will continue to pose challenges; as such the companies will need to support their marketing activities through a slew of innovative ancillary activities.
Keeping in view the volatility associated with oil prices the focus of companies will need to develop efficient price-risk management strategies. More and more crude will have to be sourced from spot markets.
Nations with untapped potential are moving towards self-reliance in terms of sourcing their crude needs. For those without any substantial indigenous crude diversified sources of supply will have to be sought. Emerging economies like China, India will be the main drivers of oil demand & hence oil prices too.
OPEC crude having life of another 150 years will continue to attract special attention from growing economies. It has to be accepted that non-OPEC crude will passover in the hands of major players which will serve the bigger nations leaving the developing nations at the mercy of OPEC. Relations with OPEC nations will have to be more inclusive and nations should pursue FTAs with OPEC to secure long term oil supplies. Light crude is slowly drying up and countries like Venezuela will assume more importance in the oil markets with a huge supply of (unofficial) heavy crude waiting to be tapped. Current prices of oil have also pushed up efforts in R&D of viable alternatives like CBM, gas hydrates, and oil shales. In short term we might see some production from these alternatives, though long term projections will definitely depend upon the oil prices in the coming time. The future E&P projects as well as refinery projects will have to face stricter environmental regulations and timely execution of the projects will hold key to success of the newer ventures.
India has an infinite demand for gas, which is projected to quadruple over the next 20 years. India is making enormous efforts to maximize the share of gas in the overall energy basket to meet its growing economic growth targets. As such various projects like LNG sourcing, pipelines feasibility and R&D in CBM are being taken up on priority basis. It needs to be mentioned that diversified supply sources will help rather than depending on a few producers. The indigenous gas market ought to be developed at a fast pace in order to decrease dependence on oil and also to find a ready market for the future gas supplies. Investing in pipelines and gas grids is the need of the hour. Gas pricing and regulatory issues will hold the key in developing the national gas market.
World natural gas consumption is projected to more than double in the next three decades. The share of natural gas in the world energy consumption is expected to increase to 28% by 2025. Gas demand is projected to grow most rapidly in Africa, Latin America and developing Asia. Again OPEC will prove to be a good supplier of gas in the years to come. Peaking oil has been shifting attention to gas of late and substantial markets have been developed. U.S. natural gas resources are on the decline while demand has been steadily growing at the rate of 1-2% annually. Recent natural gas price volatility has made analysts re-visit existing natural gas pricing models & contemplate newer concepts including price elasticity of demand. The attention will also shift on Russian reserves. Construction of transportation infrastructure is the major barrier to increased gas consumption. Investment in E&P, development of declining fields and LNG terminals will consume the bulk of investment in gas. Investments will have to come in risky political areas like Middle East, Algeria, T&T and Russia to name a few. European demand will be largely met by Russia. Alaska will do the same for U.S. in view of decreasing supplies from Canada. China is destined to be the fourth largest gas market by 2020 the frontrunners being USA, EU-25 & Russia. China’s current strategy of sourcing 65% of gas from domestic sources will need to be revisited in future considering its lack of technical, R&D, health & safety standards. By and large the vision for gas will depend enormously on the supply of vast sums of financial and intellectual capital.
LNG, the bulk of which will be used for power generation, will account for most of the increase in traded gas. OPEC countries will continue to dominate the supply of LNG.
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