ONGC shares surge 10% after Morgan Stanley Upgrade

Shares of Oil & Natural Gas Corp. jumped to the highest on Friday after Morgan Stanley, upgraded ONGC stock to ‘overweight’ from ‘equal weight’, and raised its price target to Rs 115 apiece from Rs 84. The company’s shares on Friday were up almost 7 percent to 97.85 at around 1.30 pm.

Morgan Stanley upgraded the stock, citing a higher probability of recovery in average selling prices, improved outlook on domestic production, and upside in refining associates post closures. This is the first time since March 2016 that Morgan Stanley has turned ‘overweight’ on the government-owned company.

“Though we still do not expect the management’s guidance on volume to be achieved, we see a 4.3% volume growth CAGR over FY21-24 as reasonable,” Mayank Maheshwari, analyst at the research firm, said in the note. “The stock is implying a Brent oil price of $35 per barrel, making it one of the cheapest exploration & production plays globally.”

On Thursday, Brent Crude prices crossed $50 per barrel for the first time since March.

Morgan Stanley expects production from mature fields to remain stable and gas production from new fields in the KG-basin to contribute to the overall volume growth. “ONGC has won 24 blocks in the five rounds of Open Acreage Licencing Policy round. It has also invited expression of interest for production enhancement contracts in its existing mature fields, which should support volume growth over the longer term as well,” the note said. The research firm also increased its oil realisation assumptions by 12% and its hydrocarbon production expectations to reflect better demand.

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