Synopsis : Nomura remains bullish on select oil and gas stocks despite ongoing geopolitical uncertainty and volatile energy markets. The brokerage prefers Indian Oil Corporation among oil marketing companies and sees significant upside potential in Mahanagar Gas and Gujarat Gas as refining margins and gas demand remain strong.
India's oil and gas sector continues to attract investor attention as geopolitical tensions, shifting global trade flows, and domestic policy changes reshape the industry landscape.
According to global brokerage firm Nomura, current market conditions are creating attractive opportunities across both refining and city gas distribution segments. The brokerage believes strong fuel margins, resilient demand, and supportive policy measures could drive earnings growth for select companies over the coming quarters.
IOC Emerges As Nomura's Preferred OMC Pick
Among India's major oil marketing companies, Nomura has identified Indian Oil Corporation (IOC) as its top investment choice.
The brokerage expects robust refining margins to continue supporting profitability and believes IOC is relatively better positioned than its peers.
Nomura noted that recent fuel price hikes, excise duty adjustments, lower crude oil prices compared to earlier peaks, and the impact of export duties on petroleum products have contributed to a significant recovery in industry profitability.
According to the brokerage, IOC is likely to be the least affected by potential marketing under-recoveries among the major state-owned refiners.
Strong Diesel And Aviation Fuel Margins Boost Outlook
One of the key drivers behind Nomura's positive stance is the continued strength in diesel and aviation turbine fuel (ATF) margins.
The brokerage highlighted that diesel cracks are currently trading near $50 per barrel, while ATF cracks remain around $54 per barrel. Prior to the recent Middle East tensions, these margins typically ranged between $15 and $20 per barrel.
Supply disruptions, refinery shutdowns, crude shortages, and lower petroleum exports from countries such as China and Russia have tightened global fuel markets, helping refiners maintain elevated profitability.
Nomura estimates current integrated margins at:
The significant gap in profitability is one of the key reasons behind IOC's preferred status within the sector.
City Gas Distribution Stocks Also Stand Out
Apart from refiners, Nomura remains optimistic about India's city gas distribution (CGD) sector.
The brokerage believes recent gas price revisions have substantially reduced downside risks for margins and profitability.
Nomura expects industrial demand for natural gas to remain healthy, supported by rising costs of alternative fuels and government efforts to increase gas adoption across the economy.
The brokerage also expects compressed natural gas (CNG) demand to remain resilient due to its cost advantage compared to petrol and diesel.
Mahanagar Gas And Gujarat Gas Offer Strong Upside Potential
Within the CGD space, Nomura prefers Mahanagar Gas and Gujarat Gas.
The brokerage estimates:
Nomura believes improving demand trends, stabilizing margins, and supportive policy measures could drive earnings growth for both companies over the medium term.
What Investors Should Watch
Going forward, investors should closely monitor:
While market volatility remains elevated, Nomura believes select refiners and city gas distributors remain well-positioned to benefit from the current industry environment.
Disclaimer : This article is for informational and educational purposes only and should not be considered investment advice. Investors should conduct their own research and consult a qualified financial advisor before making any investment decisions.
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