We had recently seen a rally in the commodities and the oil price. The oil prices have jumped up almost 40% and crossed US$50 this year. Is this the turnaround in the prices or a play of currency war?

It is very hard to confirm this as a turnaround situation and more likely looks reaction of US dollar weakness in the oil pricing. We have discussed about oil price in more detail at the start of this year (click here to read) and still believe that there is a long way for the oil prices to climb back to the US$80 per barrel level.

ONGC is the only stock that we follow will be benefited by the rise in oil prices. Its earnings are expected to grow by 15% this financial year and this growth will double in 2018 as market is expecting oil prices to climb back to the levels we discussed above. This 15% growth in earnings has already factored in oil prices to be US$50 –US$55 level for this year, leaving no room for further growth in its earnings. But if we see oil prices to jump at US$60 say by next quarter then definitely we will see analyst upgrading earnings of oil refineries in the country.

The price at which ONGC is trading today looks it had already factored in that, as its prices are trading almost 25% above to our calculated intrinsic value for 2018, as discussed before also on this blog last week.

Aziz Dodhiya is the chief investment officer for the Valueoperations funds which operates in the Indian market as an FPI (Foreign Portfolio Investor). We do not offer any personal advice to buy or sell any stocks and the views that are shared by Aziz might not incline to your personal investment strategy and this is the reason we advise you to take professional advice before going ahead with our views.