No low hanging fruits in the stock market anymore! Time to work hard?

HPCL

Unprecedented rallies and jaw-dropping corrections have been unnerving stock market investors for the last few days.

Has the market finally entered a phase of consolidation?

Should I buy stocks that became multibaggers over the last 18 months but corrected sharply of late?

Or prefer companies which are still available at attractive valuations?

Should I try to buy the dip and sell the rally?

You are not alone if you are facing these dilemmas nowadays.

Well, it’s perhaps the time to exit overbought/overhyped stories which are not backed by performance and time to scoop up under-owned/ignored counters.

Does the current market volatility offer a buying opportunity in these PSUs?

A sharp sell-off in midcaps and the sector rotation, which is currently at play, can present good investment opportunities even when markets have turned volatile.

According to our technical expert, a PSU oil marketing company and an energy infrastructure company look strong on the charts. And correcting markets might make them further attractive. Watch this video to know more about them.

Along with price targets, please do pay attention to stop-loss triggers mentioned in the video.

Petroleum products: An underestimated segment in the recovery phase?

Demand for petroleum products crashed in FY21. With a 9.1% decline in demand, India recorded a first yearly demand contraction for petroleum products in over two decades. Gross Refining Margins (GRMs) fell sharply as well.

GRMs denote the difference between the value of refined products and the cost of crude oil. But they don’t include energy, labour or any other fixed cost.

Of late, the improving GRMs and sustained economic recovery outlook has brightened the prospects of companies like Hindustan Petroleum Corporation Limited (HPCL).

Expanding refining capacities and improving the operational performance

Rising crude oil prices seem to have helped HPCL clock GRMs of USD 3.86/bbl in FY21 against 1.02/bbl in FY20.

The company’s refinery expansion and modernization works have been progressing well.

Post-expansion, the refining capacity of HPCL’s Visakh refinery will increase to 15 MMTPA from the existing 8.3 MMTPA and that of its Mumbai refinery will growth from 7.5 MMTPA to 9.5 MMTPA.

The company has been working on a Greenfield capacity in Barmer, Rajasthan, which will add another 9 MMTPA.

HPCL has been embracing process automation and seamless integration of various processes to attain process safeties and cost-efficiencies.

It has a little over 18,634 outlets of which 2,158 were added in FY21. Interestingly, 1/4th of the company’s retail outlets operate on solar power, thereby helping it reduce the carbon footprint. Moreover, 674 outlets offer CNG fuel option.

The company has ramped up supply-chain infrastructure by spending Rs 14,700 crore.

Gearing up for the next phase of growth

Being able to offer multi-fuel options to customers at any given retail outlet is the key to future growth. HPCL has identified petrochemical and natural gas as future growth drivers and has also been focusing on developing EV charging infrastructure capabilities.

In FY21 HPCL bought the remaining 50% stake in the HPCL Shapoorji Energy Private Limited (HSEPL) thereby making it a wholly-owned subsidiary. HSEPL is building a 5 MMTPA LNG re-gasification terminal at Chhara, Gujarat. The company has already undertaken the civil construction work at the site.

It signed an agreement with Tata Power in July 2021. Through this strategic partnership Tata Power will provide end-to-end EV Charging stations at HPCL’s petrol pumps in major cities and highways throughout the countries.

The company along with its Joint Ventures is working on increasing its presence in the City Gas Distribution (CGD) segment in 20 geographical areas spread across 9 states. It has envisaged a presence across the value chain of natural gas.

Are PGCIL and HPCL good picks at this juncture?

On October 17, 2021 our technical expert recommended HPCL and Power Grid Corporation of India (PGCIL).

PGCIL has depicted a rectangular breakout pattern on the monthly chart. Higher bottoms and uptrending MACD suggest the pattern strength.

On the other hand, HPCL has shown a symmetrical triangle breakout pattern on the monthly charts. Other indicators such as MACD, Vortex and Demand Index have been hinting at strong momentum.

From their recommended prices, PGCIL and HPCL have an upside potential of 70%-100%. That said, you should make a note of stop-loss triggers mentioned in the video.

 

Power transmission and EV charging infrastructure: an opportunity for PGCIL

Power Grid Corporation has a near monopoly business. It owns ~85% of the interstate transmission network and carries nearly 45% of the total power generated in India.

The government has set a power generation target of 445 GW, to be achieved by 2030, in the renewable energy segment. Of this, 175 GW is to be achieved by the end of 2022. This offers a high revenue visibility to PGCIL.

Furthermore, Power Grid Corporation is also looking to diversify its revenue by focusing on telecom and consulting businesses, going forward.

On October 11, 2021 the PGCIL board approved the proposal of setting up a wholly-owned subsidiary to undertake telecom and digital technology ventures.

PGCIL is also establishing itself as a major player in the electric vehicle charging station infrastructure segment and expanding its presence in major cities of India.

As we have been saying for the past few weeks, it’s time to be careful not fearful. We understand the true worth of your hard-earned money because our philosophy is Kyon ki bhaiya sabse bada rupaiya.

How can Ventura Securities help you take well-informed decisions?

If you are wondering how you should make the most of the market volatility, you should be ready with your list of stocks when markets correct.

To take well-informed decisions, you may access our research reports, read blogs and watch stock recommendation videos and other informational videos on our YouTube Channel. You may follow our media coverages too.

You may also like to read: Intelligent investing is all about finding value in scrap

 

Disclaimer: The blog is for information purposes only and anything mentioned herein shouldn’t be construed as a fundamental reason to buy/hold/sell any stock. Furthermore, the information provided in the blog and observations made therefrom shouldn’t be treated as the extension of recommendations made on the other properties of Ventura Securities.

Please note, Ventura Securities Research division recently initiated the coverage on Vardhman Specialty Steel Ltd. If you are planning to take any investment decision based on the said coverage of Ventura Securities, we strongly recommend you to read risk factors/disclosures/disclaimers mentioned therein.

The same holds true for stock recommendations made on other properties of Ventura Securities.

We strongly suggest you to consult your financial advisor before taking any decision pertaining to your finances. Asset allocation becomes extremely relevant.

We, Ventura Securities Ltd, (SEBI Registration Number INH000001634) its Analysts & Associates with regard to blog article hereby solemnly declare & disclose that:

We do not have any financial interest of any nature in the company. We do not individually or collectively hold 1% or more of the securities of the company. We do not have any other material conflict of interest in the company. We do not act as a market maker in securities of the company. We do not have any directorships or other material relationships with the company. We do not have any personal interests in the securities of the company. We do not have any past significant relationships with the company such as Investment Banking or other advisory assignments or intermediary relationships. We are not responsible for the risk associated with the investment/disinvestment decision made on the basis of this blog article.

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