ONGC has witnessed a continued rise over the last two months. From Rs 352.35 on 23 April 2003, it gained 44% to the current Rs 507.60. In the last one quarter (to 20 June 2003), ONGC's market cap has risen by a staggering Rs 21,738.30 crore or 42.9% to Rs 72,380.21 crore from Rs 50,641.90 crore.

The stock's rally has come on the back of a surge in trading volumes. It broke away from the band of Rs 350-400 that it traded within for almost a year (between April 2002 and April 2003) only recently.

Expectations are that ONGC will turn out buoyant results and announce a hefty dividend. ONGC's board is meeting on 23 June 2003 to consider accounts and dividend. While a lot of expectations are being built around the FY 2002-03 results and dividend, market men say that the stock has, in the last few trading sessions, witnessed heavy buying from foreign instituttional investors (FIIs). Low valuations and expectations of earnings growth, it is reckoned, is the reason why the stock is being pursued .

The buying in ONGC is also part of the broad buying across oil and gas stocks like Indian Oil Corporation, Gail India, HPCL and BPCL.

ONGC has been a key beneficiary of upstream deregulation. The oil sector was de-controlled from the administered price mechanism with effect from 1 April 2002. Earlier, rising oil prices in FY 2000 forced the Government to put a cap on indigenous (public sector) crude prices and abandon the phased deregulation programme. In FY 2002-03, as part of the dismantling of APM, the $16/ barrel cap was removed and crude sale price was linked to international rates. During the year FY 2002-03, average Brent oil prices were higher by 18.4% to $27.5/ barrel.

However, the rise in cess and royalty is likely to absorb some of the windfall gains. Budget '02-'03 raised the cess on domestic production of crude oil from Rs 900/ tonne to Rs 1,800/ tonne. Also, in February 2003, the government revised royalty on crude oil from a specified rate to rates on ad valorem basis on well-head price with retrospective effect. Royalty on crude has been revised from a flat rate of Rs 850/ tonne to 20% for onshore wells, 10% for offshore wells and 5% for wells under enhanced oil and improved oil recovery programmes.

For Q4 ended 31 March 2003, analysts expect ONGC to report a 128% growth in net profit to Rs 3,750 crore on a more than 90% growth in gross sales to Rs 12,500 crore.

For FY 2002-03, ONGC is expected to post a 70% growth in net profit to Rs 10,600 crore on a near 50% growth in gross sales to Rs 34,700 crore. ONGC has already announced its provisional FY 2002-03 results, whereby it reported a 68% jump in net profit to Rs 10,436 crore. Turnover increased 50% to Rs 35,820.98 crore. Crude production for the year increased 5% to 26 million tonnes.

Decontrol of gas prices is also seen as a major trigger for the ONGC stock. As per reports, the Committee of Secretaries to the government, set up to finalise the de-regulation of natural gas prices initiated in a phase manner in 1999, has recommended allowing ONGC to sell its gas from joint venture fields at market rates. If the cabinet accepts the suggestion, gas discovered in expansion projects or new fields could also be sold at market rates.

Presently, ONGC's selling price of Rs 2850/1000 cubic metres entails a subsidy of Rs 1300--1,500 crore/year, which is not compensated by the government. With the proposed market sale, ONGC's revenues will increase by Rs 1000 crore, as per reports.

ONGC, meanwhile, has announced that it will commence retailing automotive fuels from its own petrol stations by the end of 2003. The largest Indian company in terms of market capitalisation has already secured a licence from the Government of India to set up 600 petrol pumps in four states including Gujarat, Maharashtra and Karnataka. The first petrol pump will come up in Mangalore in a couple of months time.

In April 2003, the company announced the discovery of substantial oil reserves west of the Vasai gas field, off the Bombay coast. The Vasai West find is estimated to contain 240 million barrels of in-place oil plus oil-equivalent gas. The company also reported another find at Laipling-gaon in the northeastern state of Assam. Even by preliminary estimates, 100 million barrels of in-place oil plus oil-equivalent of gas are believed to be held in the Laipling-gaon discovery.

As on 31 March 2003, government of India held 84.11% stake in ONGC, while the public and institutions held 1.2% and 2.62%, respectively.