Best energy stocks to buy in India

Introduction

Energy has a connotation that is much wider than just oil and gas stocks. However, in India most of the energy stocks are a mix of fossil fuels and green energy. The best energy stocks to invest in India are largely in the oil and gas space as that is the most populated space and also the one with a substantial market cap and weight in the index.

When we identify the best energy stocks to buy in India, it must be remembered that these stocks are still quite heavily regulated. While technically, the oil marketing companies have full freedom in pricing, in practice, the government never allows oil prices to go through the roof. Here is a quick look at the ideal mix of energy stocks to buy in the Indian context.

List of Best Energy Stocks in India

In selecting the best energy stocks in India, we have kept the pure oil marketing companies out due to the nature of the pressure in the business and the skewness in pricing. Here are four energy stocks in India that are worth considering for investors.

Reliance Industries

Reliance Industries was once a pure hydrocarbon conglomerate, but now the oil-to-chemicals (O2C) business just about generates one-third of the market value of the business, with the balance being contributed by the retail and digital business. However, Reliance continues to be a very significant player in the energy space in India. While oil extraction is still quite small, RIL is substantially into gas generation, oil refining, downstream products and retailing through its BP joint venture.

Reliance is also investing heavily in the mobility business, which is about creating the necessary infrastructure for EVs. Its assets comprise refinery off-gas crackers, aromatics, gasification, multi-feed and gas crackers along with downstream manufacturing facilities. The Oil and Gas segment includes the exploration, development and production of crude oil and natural gas and Reliance specializes in prospecting from tough wells in the Krishna Godavari (KG) basin.

Oil & Natural Gas Corporation (ONGC)

ONGC is India’s largest oil extraction company and is broadly engaged in the business of exploration, development and production of crude oil, natural gas and value-added products. Its business is predominantly Exploration and Production; while Refining and Marketing are much smaller. ONGC operates global wells and joint ventures abroad through ONGC Videsh Ltd. Over the last few years, ONGC has been suffering from depleting output due to ageing of wells.

Indian Oil Corporation Ltd (IOCL)

IOCL is one of the prominent downstream oil companies in India with a strong franchise of oil refining and oil retailing and distribution. IOCL is a public sector undertaking and has been attractive for its dominance of the refining business as well as its attractive dividend yield. IOCL operates in the areas of petroleum products, petrochemicals and Other Business Activities. It has a small business of oil and gas exploration activities, explosives and cryogenics, apart from alternate energy sources. The business expanse of IOCL straddles the hydrocarbon value-chain including refining, pipeline transportation and marketing. IOCL is also into production of crude oil and gas, petrochemicals, gas marketing and alternative energy sources.

GAIL (India) Ltd

GAIL (India) Limited is a natural gas processing and distribution company. Its broad business units include transmission services, natural gas marketing, petrochemicals, LPG and liquid hydrocarbons. Its transmission business focuses on natural gas and liquid petroleum gas (LPG). It is also into City Gas Distribution (CGD) and has additional interests in sourcing and trading natural gas, production of LPG, liquid hydrocarbons and petrochemicals. It is one of the largest transporters of gas in India.

Factors To Consider Before Investing In Energy Sector Shares

Here are 3 important factors to consider while selecting energy stocks.

a)      Investors must be wary of the impact of government policy on stocks. For instance, gas prices are still regulated by the government so pricing uncertainty makes such stocks fraught with risk. Also, this problem is quite acute in the case of downstream oil companies that made huge losses due to not being able to pass on the losses to the end customers.

b)      The energy sector is contingent on the global oil prices and Indian oil sector is still too dependent on the global brent crude prices since India relies on imports to meet nearly 85 to 90% of the daily oil needs of India. When it comes to oil, India is more of a price taker and less of a price setter.

c)      Check out cash flows, and this is extremely important for the upstream oil companies which need to continuously invest in exploration and finds to ensure output is sustained. Be wary of the segmentation of the oil company and the risks of each of these sub segments.

Energy Stocks in India: Overview

Here is a quick overview of the energy stocks in India in terms of market performance.

Most of the energy stocks have not done well in the last one year or even in the last one month. Weak crude prices after the initial rise have contributed to the weak performance by the energy stocks. The energy index is down much more than benchmark indices.

Conclusion

Energy stocks have not been great performers in the last few years. This is true of global oil companies too.

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