HSBC Downgrades ONGC Amid Falling Oil Prices and Production Concerns

Shares of ONGC remained stable following a downgrade by HSBC, which lowered its rating to 'reduce' with a target price of ₹235, indicating a potential 20% decline from the previous closing price. The downgrade comes amid a bearish outlook on the oil sector, particularly after Brent crude prices fell below $75 per barrel, raising concerns about the sustainability of future projects. HSBC highlighted issues such as declining production rates and reduced guidance for the KG field, which could adversely affect the company's overall performance. The brokerage also pointed out risks associated with unrelated capital expenditures, suggesting that increased spending could complicate ONGC's financial situation. This situation is further exacerbated by weaker performance from subsidiaries, which may hinder the company's ability to pay dividends. If these subsidiaries fail to generate sufficient profits, it could limit the financial resources available to the parent company, making dividend distribution more challenging. Earlier in the week, ONGC's shares experienced a slight dip as Brent crude prices dropped to around $69 per barrel, the lowest level since December 2021. This decline followed OPEC's decision to lower its demand outlook for 2024 and 2025, contributing to a cautious sentiment in the market. Nuvama Institutional Equities also maintained a 'reduce' rating for ONGC, echoing concerns over missed production targets and the ongoing decline in oil prices. Overall, the combination of falling oil prices, production challenges, and increased capital expenditures presents a complex landscape for ONGC, prompting analysts to adopt a more cautious stance on the company's future performance.