Indian Oil Stocks at Risk: OMC Shares May Plummet 20% Amid Crude Oil Price Surge

Indian Oil Marketing Companies (OMCs) Face Worst Monthly Fall on Record

The Indian oil marketing companies (OMCs) are experiencing one of their worst monthly falls on record due to the significant impact of global crude oil prices, which have surged to levels not seen in the last four years. The ongoing US-Israeli conflict with Iran has resulted in the closure of the Strait of Hormuz, through which 20% of global crude oil flows and over 40% of India's crude imports transit. This, along with attacks on gas and oil facilities in the region, has driven Brent crude futures past the $100/barrel mark, touching almost $120/barrel at one point.

Counter-cyclical Leverage Model

OMCs operate with a counter-cyclical leverage model, where debt rises sharply to absorb working capital and under-recoveries when losses or margin pressures emerge. This model reinforces the risk that in the current crude upcycle, if marketing losses persist without price pass-through, balance sheets could see meaningful stress through rising debt levels, according to Equirus Research.

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Impact on OMC Stocks

Indian OMCs' retail selling prices have remained largely unchanged since April 2022, resulting in widened retail losses. ICICI Securities estimates that average retail margins are at a negative ₹1/litre for petrol and negative ₹13.5/litre for diesel for March 2026. OMC stocks like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), and Hindustan Petroleum Corporation Limited (HPCL) have lost 23-25% in March so far.

Potential for Further Decline

However, this correction is relatively limited when compared to past instances. According to Equirus, this can be attributed to the market's view that the crude spike may be temporary amid potential global supply additions, while stocks are trading near their historical valuation. Past periods of major crude oil price spikes have led to significant corrections in OMC stocks, with stress cycles lasting 6-24 months amid pressure on marketing margins and delayed retail fuel price pass-throughs.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Downgrade in Earnings Estimates

ICICI Securities has revised its earnings estimates for FY27E, downgrading earnings for IOCL/BPCL/HPCL by 44/52/76%. The brokerage also expects at least two more months of impact for the OMCs, implying a material 15-20% further decline from here.

Upside Potential

However, a normalisation of the event and rerating implies a material 32–44% upside potential from the bottom, coupled with the strengthening of their balance sheets over the last two years.