Why RIL is better than ONGC to play on gas price rise


Gas prices have gone up by about 50 per cent globally this calendar. That is kind of being priced in now with a 62 per cent hike, says Chakri Lokapriya, CIO & MD, TCG AMC.

Can Indian market continue to outperform this coming week when the new earnings season is going to kick off? What exactly is going to be on your radar?

India and the world have gone through several self-inflicted and natural problems. Now, some of the natural gas price hikes are because of the world coming out of lockdowns. This year’s opening up has put supply chain pressure on all gas companies, as there is a shortage of gas. On the other hand, ESG and environmental factors are also restricting carbon-based trades. Ultimately, you need carbon, you need fossil fuels, because that is more than 75 per cent of the world’s energy requirements. In this crossfire, the prices are going up, and therefore, the markets going down, as it creates an input pressure right from factories to even countries.

But I think there is enough resilience left in various pockets of the Indian market and I think there might be a correction or two, but I believe, the trend is intact on the upward path.

Coming to your picks, clearly, the update on gas prices is positive for the likes of . But beyond that perhaps, also the PSU theme. Do you see anything attractive at these levels that you can nibble into?

Looking at the gas prices in India, they revise the prices once every couple of years, whereas in the rest of the world it happens real time. Gas prices have gone up by about 50 per cent this calendar year globally, and that was not reflected. That is kind of being priced in now with a 62 per cent hike. Hence, companies like ONGC, Oil India will see significant revisions in their earnings on the upside. But the risk that you run into with ONGC is a regulatory risk of capping the prices. A nicer way of playing this theme would be with Reliance Industries, which will probably see about a 5-7 per cent earnings upgrade. Also, since we are going into the winter season where demand for gas and oil is high, Reliance Industries will be a natural beneficiary.

Coming to banks, I would go with Canara Bank and other PSU banks. Canara Bank still trades at about 0.4 times book, which is less for a normal range of about 0.8 or one times. I think its capital position is strong, NPAs are going down, provisioning is far better and corporate risk is kind of coming down. So I think within the banking sector, Canara Bank looks good.


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