Author
Riya Kapoor
|
Published at:
4th February 2026, 12:48 pm
Overview
India’s oil and gas sector experienced a significant rally, led by a jump in crude oil prices stemming from heightened geopolitical tensions. Exploration and production firms like ONGC and Oil India saw sharp gains, with ONGC trading at a notable valuation discount compared to industry peers. State-owned oil marketing companies also advanced, driven by operational improvements. This sector-wide surge occurs against a backdrop of a depreciating rupee and broader market weakness, presenting a mixed outlook for investors.
THE SEAMLESS LINK
The surge in India’s oil and gas sector is being amplified by escalating geopolitical friction, which has predictably driven crude oil prices higher. This external shock is interacting with existing strategic initiatives and valuation discrepancies within the sector, creating a complex investment narrative that extends beyond simple commodity price movements. For exploration and production (E&P) companies, the current environment offers not just immediate gains but also a platform to highlight future growth potential, while oil marketing companies (OMCs) leverage operational efficiencies.
The Valuation Gap and Strategic Imperative
While geopolitical events are the immediate catalyst, the deeper story for players like Oil and Natural Gas Corporation (ONGC) lies in its current valuation and strategic partnerships. ONGC’s Price-to-Earnings (P/E) ratio stands at approximately 8.83, significantly below the oil industry average of 14.82. This valuation gap, coupled with its recent agreement with BP Plc as a technical service provider for Western offshore assets, positions ONGC for potential production transformation over the next five to seven years, with benefits expected from the fourth quarter of FY26 [cite: Original Source]. BP’s commitment to achieving up to 60% incremental production could substantially alter ONGC’s output profile. In contrast, state-owned OMCs like Indian Oil Corporation (IOCL), Hindustan Petroleum Corporation (HPCL), and Bharat Petroleum Corporation (BPCL) have seen their stocks rise, driven by strengthening refining margins, reduced LPG losses, and government compensation mechanisms. Their P/E ratios, generally ranging from around 6x to 17x depending on the company, reflect a more mature business model focused on operational efficiency rather than substantial new production capacity.
Geopolitical Tailwinds and Sectoral Performance
The immediate driver for the sector’s performance is the surge in crude oil prices. Brent crude has climbed towards $68 a barrel, and West Texas Intermediate (WTI) crude is near $64 a barrel, marking a more than 13% increase since early January [cite: 11, 18, Original Source]. This price appreciation is a direct response to renewed geopolitical tensions, including the US downing an Iranian drone and Iranian vessels approaching a US-flagged vessel. The BSE Oil & Gas index rallied approximately 2.4% during intra-day trade on Wednesday, significantly outperforming the BSE Sensex’s modest 0.16% decline [cite: Original Source]. The index is trading near its 52-week high of 29,249.06. However, India’s heavy reliance on crude oil imports means the sector remains sensitive to global price volatility and supply disruptions, even as OPEC+ anticipates a demand pick-up.
Analyst Views and Macro Crosscurrents
Analyst sentiment on ONGC remains cautiously optimistic, with ICICI Securities retaining a ‘Buy’ rating and a target price of ₹320, though this was previously ₹340 [cite: Original Source]. Conversely, MarketsMOJO recently downgraded ONGC from ‘Buy’ to ‘Hold’, citing a more cautious outlook. The sector’s rally is occurring against a challenging macroeconomic backdrop for Indian equities. The Indian Rupee has depreciated, crossing 92 against the US dollar, which increases import costs and fuels inflation, potentially pressuring the Reserve Bank of India. Broader market sentiment has been impacted by uncertainty surrounding US-India trade deals and a general aversion to risk in emerging markets, leading to increased speculation in haven assets like gold and silver. While this macro environment presents headwinds, the intrinsic value and strategic growth prospects of companies like ONGC may offer a compelling case for selective investment within the oil and gas space.
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