Stocks

Oil & Gas: Open market buyback, ‘an effective tool’

Our Bureau Chennai | Updated on November 27, 2020 Published on November 27, 2020

Despite HPCL now being an ONGC group company, the open market buyback is a step toward rewarding shareholders and has been received positively by investors, said Emkay Global in a note. The move is in the interest of minority shareholders, as reflected in the 20-25 per cent rise in stock prices after the announcement.

Oil & Gas CPSE sentiment has been weak despite cyclically low valuations, recovery from Covid-19 troughs, steady earnings by OMCs and oil price consolidation implying better days for upstream and GAIL. Buybacks can be an effective tool for improving outlook, it added.

Open market buyback in a CPSE would mean the Government ownership rising, contrary to its disinvestment objective, but at this juncture, it can be an offset to past actions such as cross buying-holdings and ETF divestment by successive governments, it further added.

With cost of debt being low, some leverage can be used. "With broader demand and price-margin recovery from positive vaccine news-flows, the time is right for the Government and management to consider buybacks as a complementary nudge to raise CPSEs’ value," Emkay note said.

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Published on November 27, 2020
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