Global brokerage firm Citi believes city gas companies such as Indraprastha Gas Ltd. and Mahanagar Gas Ltd. offer compelling risk-reward opportunity. In addition to Hindustan Petroleum Corp Ltd and Gail (India) Ltd., Citi has opened a positive catalyst watch on Indian Oil Corporation Ltd.

In its note on the Oil and Gas sector, Citi highlighted a string of event catalysts that will come into focus in the coming months. Key among these are:

– A potential relief for city gas distributors (CGDs).

– The GST Council may bring natural gas under GST or the government reducing excise duties on CNG.

– A strong earnings recovery for oil marketing companies (OMCs), supported by healthy marketing margins or LPG compensation.

– Progress on GAIL’s proposed tariff hikes.

– The commissioning of Reliance Industries’ solar module manufacturing facility.

In an interaction with CNBC-TV18 on November 18, Market Expert Prakash Diwan had said, “Incrementally, any positive news in terms of supply side, pricing in terms of softness or pricing, could probably be a good opportunity to start buying into these stocks. But yes, right now, stay away. Let the dust settle and then probably look at it sometime later. My sense is that could probably be about three, four months.”

Last month, shares of IGL and MGL were downgraded by analysts yet again after the government cut its APM gas allocation to these companies by another 20%.

Jefferies had downgraded Mahanagar Gas to ‘Underperform’ from its earlier rating of ‘Buy’ and cut its price target to ₹1,130, while IGL has been downgraded to ‘Underperform’ from its earlier rating of ‘Hold’ and also cut its price target to ₹295 from ₹330 earlier.

JPMorgan too had downgraded Mahanagar Gas to ‘Neutral’ from ‘Overweight’ and cut its price target of ₹1,300 and downgraded IGL to ‘Underweight’ as well and cut its price target to ₹343.

Shares of IGL are trading 1.21% higher at ₹388.10, while those of MGL are up 1.08% to ₹1,306.80. Shares of Gujarat Gas are up 1.40% at ₹509.20.