Stocks to Sell: Indian Oil Corporation in focus as Goldman Sachs flags up to 49% downside risk, warns on other oil stocks too

Stocks to Sell: Global brokerage Goldman Sachs has struck a cautious note on India’s oil marketing companies, saying recent relief measures may not be enough to offset the pressure from high crude prices and a weak rupee.

The government’s decision to cut excise duty on petrol and diesel by Rs 10 per litre has provided some support to the sector. However, the brokerage believes the overall risk profile remains elevated, especially for companies like Indian Oil Corporation.

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Relief from duty cut, but only to an extent

The excise duty cut has helped oil marketing companies by reducing their marketing losses, as the benefit has not been passed on to consumers. This has effectively improved near-term margins.

But Goldman Sachs points out that the relief is limited. Earlier, the break-even level for these companies was around $70 per barrel. Due to rupee weakness, this had dropped to about $67 per barrel. After the duty cut, the break-even has moved up to roughly $78 per barrel.

With crude prices currently hovering near $122 per barrel, the gap remains wide, keeping margins under pressure.

EBITDA losses remain elevated

The brokerage has flagged that the EBITDA loss run-rate for oil marketing companies is still high, even above levels seen during earlier peaks. This suggests that companies are yet to fully absorb the impact of elevated input costs.

Stock-specific views

On Hindustan Petroleum Corporation Limited, Goldman Sachs has maintained a Neutral rating with a target price of Rs 310, implying a downside of around 7 per cent from current levels.

For Bharat Petroleum Corporation Limited, the brokerage has also retained a Neutral stance but sees some upside, with a target of Rs 340, indicating a potential gain of about 21 per cent.

The most cautious view is on Indian Oil Corporation, where the brokerage believes the risk-reward is unfavourable. It sees a potential downside of up to 49 per cent in a bear case scenario and about 20 per cent even in the base case.

Why pressure may continue

Looking ahead, Goldman Sachs expects Brent crude to average around $80 per barrel in CY27. Even then, the brokerage believes challenges will persist.

Crude prices could remain structurally high, pricing flexibility for companies may stay limited, and geopolitical tensions continue to create uncertainty. All these factors together keep the sector under stress.

What it means for investors

The brokerage’s view suggests that while there has been some relief, the sector is not out of the woods yet. Volatility could remain in the near term.

For investors, the advice is to stay selective. Companies with stronger balance sheets and better margin visibility may be better placed to handle the pressure. Among the pack, BPCL appears relatively better positioned, while caution is advised on HPCL and IOC for now.

Overall, the direction of crude prices and government policy will remain key triggers for the sector going forward.