Benign valuations, lower crude prices, and stronger Gross Refining Margins (GRMs) will fuel a rally in state-run oil marketing companies (OMCs), with stocks having the potential to rise by as much as 50%.

Brokerage firm Avendus Spark has upgraded Indian Oil Corporation (IOC) Ltd., the country’s largest state-run downstream oil refiner to ‘Buy’ rating. The brokerage has a price target of ₹155 on Indian Oil. The price target implies a potential upside of 24% from Tuesday’s closing level.

Shares of Indian Oil are still down 32% from their recent peak of ₹185.97.

Avendus Spark has also upgraded HPCL to ‘Buy’. The brokerage has a price target of ₹460 on HPCL. The price target implies a potential upside of 39% from Tuesday’s closing level.

HPCL shares have corrected 28% from their recent peak of ₹457.15.

The brokerage has also maintained a ‘Buy’ rating on BPCL, with a price target of Rs 400 per share. The price target implies a potential upside of 51% from Tuesday’s closing level.

Meanwhile, BPCL shares have corrected 29% from their recent peak of ₹376.

Key reasons behind the bullish outlook

– Benign valuation: The stock is trading at a 15-25% discount, compared to its 10-year average price-to-book (P/B) ratio.

– Lower crude price: Oil prices are expected to stay below $75 per barrel, reducing input costs.

– Stronger GRMs: Higher refining margins will support profitability.

Outlook

Avendus Spark wrote in its note that a slowdown in refinery additions in the Calendar Year 2025-2026 points to a revival in GRMs.

The brokerage also said that an expansion in auto fuel marketing margins and reduced LPG losses are expected to play a key role in FY26.

The brokerage also expects that over 70% of FY26 profit estimates could be achieved in the first half of FY26 alone.