Budget may tap oil windfall? JM Financial flags excise-duty risk for HPCL, BPCL, IOCL; backs Oil India, ONGC

With the Union Budget 2026-27 just weeks away and Brent crude hovering near $60 a barrel, JM Financial is urging investors to pick their oil and gas bets carefully. The brokerage has reiterated buy ratings on Oil India and ONGC, while warning of fiscal risks for state-run oil marketing companies, maintaining a sell on HPCL and reduce calls on IOCL and BPCL, citing potential excise-duty hikes that could offset gains from low crude prices.

JM Financial said subdued crude prices could continue to support near-term marketing margins for OMCs but cautioned that the government could use the upcoming Budget to claw back revenue gains through higher excise duties on petrol and diesel. “OMCs’ blended auto-fuel GMM of ~INR 8.2/ltr (vs. historical GMM of INR 3.5/ltr) implies INR 3-4/ltr scope for a hike in excise duty,” the brokerage noted. “Every INR 1/ltr increase in excise duty can boost central government revenue by INR 165 bn annually.”

Upstream stocks stand out

For upstream producers, JM Financial sees significant value at current prices, which already factor in weaker near-term crude realizations. The brokerage reiterated its buy rating on Oil India, with a revised target of Rs 500 per share, and on ONGC, with a revised target of Rs 290 per share, citing medium-term production growth and attractive current valuations.“We prefer Oil India as it could be a ~15% earnings-compounding story over the next 2-3 years,” JM Financial said, citing expected 20-25% cumulative oil and gas production growth and the expansion of the Numaligarh refinery from 3mmtpa to 9mmtpa. ONGC, while less aggressive, is also expected to benefit from medium-term production growth, despite lower near-term Brent assumptions of $65/bbl for FY26 and FY27.

Overall, JM Financial’s analysis highlights the resilience of upstream producers in a subdued global crude environment, suggesting that investors could find more reliable medium-term growth in Oil India and ONGC compared with downstream marketing and refining companies, which face valuation and policy risks.

Caution on OMCs

JM Financial noted that HPCL, with a target price of Rs 410 per share, is trading at roughly a 15% premium to historical valuations. Its Rs 730 billion Rajasthan refinery project may deliver only single-digit returns due to time and cost overruns. Similarly, IOCL (target Rs 160) and BPCL (target Rs 350) face stretched valuations and aggressive capital expenditure plans, prompting the brokerage to maintain reduce calls despite strong near-term earnings prospects.The brokerage expects near-term earnings for IOCL, BPCL, and HPCL to remain robust. For 3QFY26, EBITDA is projected to rise 7% for IOCL to Rs 155 billion, 3% for BPCL to Rs 101 billion, and 3% for HPCL to Rs 71 billion, driven by strong diesel cracks and partial recovery in gross refining margins. However, integrated margins are likely to moderate slightly, reflecting crude inventory losses and softer auto-fuel marketing margins.

Global oversupply keeps crude subdued

JM Financial pointed to persistent oversupply in global oil markets as a key factor for subdued Brent prices. The brokerage highlighted that the International Energy Agency expects a global oil surplus of roughly 2.3 million barrels per day in 2025, rising to nearly 3.8 million barrels per day in 2026, driven by OPEC+ output hikes and non-OPEC supply growth. Any potential easing of sanctions on Russia amid a peace deal with Ukraine could further add to oversupply pressures.

Against this backdrop, JM Financial’s message is clear: upstream plays such as Oil India and ONGC offer medium-term value, while OMCs may face both valuation and policy headwinds, particularly as the upcoming Budget could tap into windfall gains from lower crude prices.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)