Explained: Why ONGC shares jumped 5% today

Shares of Oil and Natural Gas Corporation (ONGC) rose by nearly 5% on Tuesday, reaching Rs 271.10 per share during intraday trading. The surge in its share price came after a positive outlook from global brokerage Jefferies, which retained its bullish stance on the stock.

Jefferies highlighted that the central government’s policy continuity is expected to sustain ONGC’s profitability above historical averages.

Following the announcement of the election results on June 4, where the BJP failed to secure a majority, ONGC’s shares plummeted by almost 17%.

Before Tuesday’s gain, the stock had declined by nearly 9% in June. Jefferies views this correction as an excessive reaction, presenting a compelling buying opportunity for investors.

The brokerage has set a target price of Rs 390 for ONGC, suggesting a potential upside of 50.5% from its previous close.

Jefferies highlighted that ONGC’s increased production from the KG basin in Q3FY25 and its positive impact on profitability are critical factors to watch. The brokerage also noted that ONGC's valuation is currently at a significant discount to the Nifty compared to its long-term average.

Over the past year, ONGC’s stock has surged by 75%, with a 32% increase year-to-date in 2024.

The stock has posted positive returns in five out of six months this year, including a 1.5% gain in June after a 6.5% drop in May.

ONGC reached its 52-week high of Rs 292.95 on May 3, 2024, and its 52-week low of Rs 152.55 on June 12, 2023.

From the previous close of Rs 259.10, the stock is 11.5% below its yearly high and 70% above its yearly low.

In FY24, ONGC reported its highest-ever standalone net profit of ₹40,526 crore and a consolidated net profit of ₹57,101 crore. The company also saw a 2.4% quarterly increase in crude oil production, reaching 5.359 MMT in Q4 FY24.

Following these robust earnings, Nomura upgraded ONGC’s stock from 'Reduce' to 'Buy', raising its price target to Rs 290 from Rs 140.

Nomura expects ONGC to benefit from favorable cess and royalty structures, exemptions from windfall taxes on KG 98/2 volumes, and an increasing share of gas volumes.

Additionally, Nomura increased its EBITDA estimates for ONGC by 5% for FY25 and by 14% for FY26, factoring in higher gas prices for new wells and discoveries.