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A joyful life is an individual creation that cannot be copied from a recipe.

The market has seen a joyful run in recent series. A healthy correction is long awaited. Global cues today are subdued and that need not bring in any meaningful fall. So far, sector rotation and follow-on buying have kept the market in good cheer. This week will see the market react to Q4 GDP numbers and infrastructure output for January. The outlook is a weak start. RIL could help reduce the losses on the main indices. The F&O rollover was encouraging as market wide rollover of Nifty contracts to March series stood at 73 pc as against an average of less than 70 pc in the last three series. HPCL could see action on reports that ONGC could take control of it as part of the government’s plan to create an integrated public sector oil entity. FPI activity has resumed as overseas investors put in over Rs. 14,600 crore into the Indian market in Feb investing Rs 9,359 crore in equities and another Rs 5,279 crore in the debt segment.

Rollovers Analysis - February 2017

Back to back strong series, as Nifty shutting shop at 8940 levels for February expiry, Nifty/Banknifty up 3.9/7.2% on (eoe) basis. Participation increased as open interest swelled towards life high levels on market wide positions and Bank nifty OI at highest since 2010.

Strong domestic flows, global equity rally, positive news momentum on index heavy weights (HDFCBank/Reliance/TCS) pushed Nifty higher towards physiological mark of 9,000. Rollovers of Nifty/Bank Nifty stood at 73/60% (2.25cr/27.5lacs shares) as against 3 months average of 69/68%, rollovers in share terms were significantly higher for bank nifty to tune of 37% compared to previous month. Market-wide rolls stood at 82.8 as against 82% in the previous expiry.

FIIs long/short index futures rolls stood at 77/32% as against previous four month average of 66/46%. Total aggregate open interest rolled to March series at 387cr increased by 21% when compared to previous expiry. On options data, March series Nifty index starts at strike 9,000 calls/8500 puts holding the maximum OI to tune of 3.36mn/3.09mn shares. With FED policy event and domestic election outcome due in March volatility likely to inch higher from current levels.

Derivatives Diary

• Nifty ending February expiry at 8940 levels, SGX Nifty indicates gap down opening to tune of 30 points on back of weakness in global markets.
• Rollovers for Nifty/Bank Nifty stood at 73/60% (2.25cr/27.5lacs shares) as against 73/60% (1.9cr/20lacs shares) previous expiry.
• Bank nifty open interest surged significantly at 27.5 lacs shares lead by buoyancy in private banks.
• FIIs index futures long/short ratio at 4.83x starting with net long futures positions at 1.8lacs contracts.
• Volatility likely to inch higher as markets awaits FED policy and domestic election outcome during the month.

Fixed Income Synopsis

• The new 10Y benchmark 6.97% GS 2026, closed 2bps lower at ~6.92% vs previous days close of 6.94% and the 7.59% GS 2026 ended at 7.07%.
• The demand at the fixed Repo window was Rs.15bn, while the supply at the fixed Reverse Repo window was registered at Rs.68.97bn. The Call WAR closed at 5.92% vs. previous close of 5.88%.
• The benchmark five-year OIS closed the session at 6.72% vs. previous day's close of 6.73%, while the 1-Y OIS closed at 6.42% vs. previous day's close of 6.43%.
• The Reserve Bank of India’s Reference Rate for the US Dollar was Rs.66.83 as on February 23, 2017, while the corresponding rate for the previous day, February 22 was Rs.66.96.

Technical Track

Nifty made new 52-week high on Friday but gave a close below previous peak (8969) at 8940. Currently index is trading within the three-digit gann channel i.e. 8860-8910 wherein, multiple gann pressure points are observed. Failure to break above 9010 could see Nifty beginning a corrective move in the form of rangebound consolidation. As per Gann analysis, this week is an anniversary period where index formed a major bottom of 6826 on 29th Feb 2016. According to Gann, anniversary dates more often results in the formation of tops and bottoms (either minor or significant). A year earlier around the same time period (i.e. 4th March 2015), Nifty had made a top of 9119. So after a rally of ~14% from the midpoint i.e. 7894 of entire move of 6825 to 8969, Nifty is hovering close to its all-time high level, wherein multiple supply points are found. So risk reward ratio for creating fresh longs are not favorable.

Goldprices registered a 3 � month high, helped by relatively soft US dollar and rising gold ETF inflows. Holdings in world’s largest gold backed ETF (SPDR) have risen some 5% this month. Short term outlook for the yellow metal hinges on Fed rate expectations. In this context, markets do not expect a rate hike till June policy meeting, which is deemed supportive for the precious pack. This week, markets will be interested in the second estimate of US Q4 GDP growth numbers, expected at 2.1%, slightly higher than the first reading.

In the non-ferrous pack, metal prices have regained some lost ground after a liquidation on Thursday. On copper, there are no signs of any end to the labour strike at Escondida mine in Chile.

Oilfutures are holding ground despite seventh consecutive weekly rise in US oil inventories. Nevertheless, stockpiles at Cushing, Oklahoma (storage hub) registered the biggest weekly drop since October.

Greenback slipped to a two-week low against Yen, with values dipping to below 112 level at one point of time. Meanwhile, trading in Euro and Sterling remains relatively range-bound. On speculative front, CFTC reported that non-commercials/funds increased bullish bets on the dollar for the first time in seven weeks.

Oil and Natural Gas Corp (ONGC)will invest Rs73.27bn in developing four oil and gas projects, including the Ratna field which it had got back from Essar Oil.

ZydusCadilareceived US drug regulator US Food and Drug Administration (USFDA) approval for the group’s plans to initiate a Phase-2 clinical trial of Saroglitazar Magnesium (Mg) in patients with Primary Biliary Cholangitis of the liver.

Softbank has denied reports claiming that it was interested in picking up a stake in the Vodafone- Idea Cellular merger.

Jet Airwaysannounced a reciprocal codeshare partnership with Hong Kong Airlines, which will enable Indian fliers to travel seamlessly to New Zealand, Japan, Indonesia, Vietnam and Thailand.

Piramal Enterprises (PEL)has entered into a partnership with Cambridge to provide long term equity capital to residential projects across five metros in the country.

ICICI Bankhas acquired its 814.4mn shares of Jaiprakash Power Ventures Ltd under the strategic debt restructuring plan.

In a big jot to Indian Oil Corp (IOC), The Odisha Government has withdrawn tax incentives given, to the Rs345.55bn Paradip refinery, making the company reconsider its plans to invest another Rs520bn in the State.

Larsen and Toubro Hydrocarbon Engineering, subsidiary of Larsen & Toubro has bagged orders worth Rs11bn from IOC for its Bongaigaon refinery in Assam.

Coal Indiasaid the board of its arm Northern Coalfield has approved a share buyback plan worth Rs12.44bn.

Tata Steelhas received environment clearance (EC) for expansion of its Haldia coke plant in West Bengal by ramping up unit capacity from existing 1.6MTPA to 2.2MTPA, making it the largest standalone coke plant in Asia.

Shoppers Stop has sold almost its entire 5% stake in airport retail venture Nuance Group Fashion & Luxury Duty-Free Private for an undisclosed sum.

Oil and Natural Gas Corporation's (ONGC) board has approved the signing of definitive agreements for buying Gujarat State Petroleum Corp's (GSPC) entire 80% stake in the KG-basin natural gas block for USD1.2bn. (BS)

BhartiAirtelwould buy Telenor (India) Communications, in a deal that will bolster Airtel's footprint with additional spectrum in the 1800MHz band.

Overseas investors have pumped in over Rs146bn into the Indian capital markets this month so far, enthused by clarity on FPItaxation.

India's foreign exchange reserves declined by USD56.8mn to USD362.73bn in the week to February 17, on account of dip in foreign currency assets (FCAs).

Independent Power Producers can now bid for coal allocated to state government-run coal based power plants.

Indian firms raised over Rs46bn through issuance of shares to institutional investors during 2016, a sharp fall of 76% from the previous year.

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Events to watch this week

• US equities set more records

• Fed signals possible March rate hike

• Trump supports US border tax

• Le Pen gains in French polls

• Greece open to reforms

The Week ahead:

• US president Trump is scheduled to speak to Congress on Tuesday, 28 February

• French GDP data are scheduled to be released on Tuesday, 28 February

• Preliminary US fourth-quarter GDP data are scheduled to be released on Tuesday, 28 February

• PMI Manufacturing Index data are released on Wednesday, 1 March

• US initial jobless claims figures are released on Thursday, 2 March

• US Federal Reserve chair Yellen is scheduled to speak on Friday, 3 March

For the week,US equities continued setting records this week — including 10 record daily closing highs in a row for the Dow Jones Industrial Average as of 23 February. Investors remain optimistic that US president Donald Trump will cut taxes, reduce regulation and implement a sweeping infrastructure spending program. The S&P 500 Index is up 5.3% year to date and has gained over 21% over the past 12 months. Market volatility increased slightly this week, but continued to remain relatively low. The yield on the 10-year US Treasury bond fell 2.9% this week to 2.34%, as of early Friday morning. Oil prices remained relatively unchanged this week.

NIFTY- 8,939.50
CRUDE OIL-Rs 3,617barrel
GOLD-Rs 29,640 gram
Rs/$-Rs 66.83

MARKET ROUND UP 
Key benchmark indices clocked decent gains in a truncated week ended Thursday, 23 February 2017, as record hitting streak on Wall Street helped the upmove. A surge in index heavyweight Reliance Industries (RIL) and positive global stocks during the week also supported gains on the bourses. 
The Sensex moved above the psychological 29,000 mark in intraday trade on Thursday, 23 February 2017. The market gained in all the four sessions of the week. Indian stock markets remain shut on Friday, 24 February 2017 on account of Mahashivratri.
The Sensex gained 424.22 points or 1.49% to settle at 28,892.97. The Nifty 50 index rose 117.80 points or 1.33% to end at 8,939.50. 
The BSE Mid-Cap index rose 0.81%. The BSE Small-Cap index gained 0.89%. Both these indices underperformed the Sensex.

Macro Economic Front: 
On the Economic Front,International Monetary Fund (IMF) said on 22 February 2017 that India's overall outlook remains positive, although growth will slow temporarily as a result of disruptions to consumption and business activity from the recent withdrawal of high-denomination banknotes from circulation. But the nation's expansion will pick up again as economic reforms kick in, said the IMF in its latest assessment. IMF reduced is growth forecasts to 6.6% for fiscal year 2016-17 and to 7.2% in 2017-18. 
Challenges remain, however, and there is little scope for complacency. A key concern is the health of the banking system, which is still dealing with a large amount of bad loans, and also heightened corporate vulnerabilities in several key sectors of the economy.

Major Action &Announcement:
TCS gained 3.05%. TCS announced on 20 February 2017, that the board of directors of the company at a meeting held on 20 February 2017, approved a proposal to buyback up to 5.61 crore shares of the company for an aggregate amount not exceeding Rs 16000 crore, being 2.85% of the total paid up equity share capital, at Rs 2,850 per share.

Tata Motors rose 2.05%. Tata Motors said it is desirous of offering the sixth series of its rated, listed, unsecured, redeemable, non-convertible debentures (NCDs) aggregating to Rs 500 crore. In this regard, the company will hold a meeting of its duly constituted committee of the board on 2 March 2017. The announcement was made during trading hours on Thursday, 23 February 2017.

Maruti Suzuki India rose 0.72%. The company announced that its smart hybrid vehicles Ciaz SHVS and Ertiga SHVS have crossed cumulative sales of 1 lakh units in February 2017. This marks the success of Maruti Suzuki's efforts in hybrid and electric mobility in India. The announcement was made on 20 February 2017. 

BhartiAirtel declined 0.93%. The company announced on 23 February 2017, that it has entered into a definitive agreement with Telenor South Asia Investments (Telenor) to acquire Telenor (India) Communications (Telenor India). The acquisition is subject to requisite regulatory approvals. As part of the agreement, Airtel will acquire Telenor India's running operations in seven circles - Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West) and Assam. These circles represent a high population concentration and therefore offer a high potential for growth. 

Shares of Reliance Industries (RIL) surged 9.97%. RIL announced at the fag end of market hours on Tuesday, 21 February 2017, that its subsidiary Reliance JioInfocomm (RJIL) breached the 100 million customer mark in 170 days. Jio announced that in addition to its own market leading tariff plans, it will also offer its customers the option to choose the highest selling tariff plan of any of the other leading Indian telecom operators, but with 20% more data than what any other operator provides.

NTPC fell 2.54%. The stock was the top loser from the Sensex pack. The company said that the 115 megawatts (MW) out of 260 MW of Bhadla Solar Power Project of NTPC has been commissioned. With this, the installed capacity of NTPC's solar power projects has touched 475 MW. The total installed capacity of NTPC on standalone basis has become 41177 MW and that of NTPC group has become 48143 MW. The announcement was made on 22 February 2017. 

Global Front: 
In Overseas Markets,Asian markets made a mixed closing on Thursday, following their US counterparts after the Federal Open Market Committee released the minutes of its two-day meeting ended Feb. 1, where members believed it might be appropriate to lift U.S. interest-rates “fairly soon.”  Chinese stocks slipped, with realty and construction-related stocks leading declines, after reports emerged that China's financial regulators are working on new rules to rein in asset management risks. Meanwhile, European stocks ping-ponged between small gains and losses, as investors sifted through earnings reports and assessed the mixed tone on U.S. interest rates from the Federal Reserve.

Global Economic News:

Fed signals potential March rate hike 
In minutes released this week, US Federal Reserve officials signaled the potential for a rate hike at its next policy meeting in March. Citing potentially increased spending and reduced taxation under the Trump administration, the minutes suggest that the Fed may act more aggressively to keep a lid on inflation. The central bank increased the federal funds rate to between 0.5% and 0.75% in December and indicated then the potential for three quarter-percentage-point increases this year. Markets are expecting two rate hikes in 2017, and while odds of an increase have risen for March, they still remain low, at around 22%, according to data from CME.

Frexit fears rise on Le Pen's gains 
While French presidential candidates François Fillon and Emmanuel Macron still hold commanding leads over Marine Le Pen in the upcoming elections, the right wing candidate has narrowed the gap, according to French polls released this week. Ms. Le Pen favors dropping out of the euro currency, and the markets aren't taking any chances. In reaction to the polls, the spread on French five-year government bonds rose to its highest level since the eurozone debt crisis. Trading volume for credit default swaps on French government debt also surged as spreads spiked. Credit default swaps are held by some investors for insurance against debt defaults. Rising CDS spread levels indicate that investors believe the chance of a default has increased.

Greece open to reforms
Greece agreed to legislate pension and other structural reforms this week, generating some optimism that negotiations on its bailout terms would resume after months of gridlock. Yields on Greek government debt fell to their lowest level in a month, although much work remains to be done.

GLOBAL CORPORATE NEWS

Trump voices support for border tax
Donald Trump said this week that he supports a form of the proposed "border adjustment tax" (BAT), a tax on all imports. Trump suggested that such a tax would entice companies to relocate manufacturing operations to the United States, which would create more US jobs. Retail stocks have been pummeled in recent months over speculation that a border tax would be implemented. The retail industry imports most goods it sells in the US. J.C. Penney announced this week that it would close more than 100 stores, and rivals Kohl's and Macy's announced they would lease some of their retail space to other retailers in an effort to generate more revenue from real estate assets. Under the proposal, US export income would be tax free, which could benefit some energy companies, such as crude oil exporters.

NEW 52-WEEK HIGH BSE (A):

NEW 52-WEEK LOWS BSE (A):

MAJOR WEEKLY GAINERS IN BSE A CATEGORY:

MAJOR WEEKLY LOSERS IN BSE A CATEGORY:

Eyes will be set on the certain US economic data releases are:
Monday (27 Feb)
Pending Home Sales Index 
Tuesday (28 Feb)
Consumer Confidence
Wednesday (01 Mar)
PMI Manufacturing Index
Thursday (02 Mar)
Jobless Claims 
Friday (03 Mar)
PMI Services Index

Fundamental Pick of the week:
Derivative Ideas 
NIFTY futures added around 14.6% of open interest as long positions. It has rolled 49% into next series so far. Put writing was seen at 8900 and call writing was seen at 9000 strike. We suggest doing bull spread as per levels mentioned below.

Strategy:
BUY NIFTY 8900 CE AT 35 & SELL 9000 CE AT 6, NET PREMIUM PAID 29, SL 14, TARGET 80.

Indian Market Outlook:
Nifty futures traded with firm sentiments last week tracking bearish USD/INR futures prices and continue buying support from traders. It likely to trade with firm sentiments in current week as well on buying support at lower levels from traders. It witnessed strong buying support from traders and managed to hold the gains at higher levels at end of the week which indicates continuation of firm sentiments in current week as well. If it managed to sustain above 8900 level than it may witness firm sentiments till 9130 levels. Breaking of 8850 level with good volume will make Nifty bearish and down side may come due to selling pressure below that level. Overall trend for Nifty futures likely to remain positive for the week and may witness some profit booking at higher levels which may limit the upside in Nifty. Technically, It took good support of Fibonacci retracement levels which indicates continuation of firm sentiments. 8995 will be the Crucial level to watch out for in current week. Rise in volume and fall in open interest with firm price movement indicates resistance at higher levels in current week. 

TECHNICAL VIEW:

Nifty Spot View 
Nifty traded with firm sentiments in last session due to buying support from traders. Next important support seen at 8870 level. Nifty likely to trade with sideways sentiments and 8910 at lower side will be the trend deciding level for intraday session. Higher side resistance seen at 8990 levels. However, some profit booking at higher levels may limit the upside in NIFTY. Applying momentum Indicator RSI for 14-day period trading at level of 71.63 indicates that it is trading in over bought zone and may face resistance at higher levels.

Bank Nifty Future View 
Bank Nifty traded with firm sentiments due to buying support from traders. It likely to trade with sideways sentiments in Intraday session on profit booking at higher levels from traders. Bank Nifty has next resistance at 21150 levels while 20700 is the strong support for the same. If Bank Nifty trade firm then it may test next resistance of 21150 levels. Technically, Rise in volume and fall in open interest with volatile price movement indicates continuation of volatile sentiments in intraday session.

Conclusion:

High made was 8960 near our target of 8981 and closed above 8910 suggesting another attempt will be made to break the range of 8981 for next move towards 9050/9120. As the market moves higher traders need to tighter there SL, As per gann analysis only on close below 8827 the current uptrend will end, Till 8827 is held bulls will make merry and move towards the life highs of 9120. Trailing position is the best way to ride such strong trending market and not speculating when market will form a top. High made was 8982 near the gann angle resistance level, as we have been discussing in process doing our target of 8982 above 8910. Bulls should protect the level of 8847 now for the current trend to continue. Fresh long above 8990 for move towards 9060/9120.Bearish only below 8840 for a move towards 8757/8700/8672.

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OMCs reported decent results in Q3 driven by strong volume growth and inventory gains. Core earnings of OMCs adjusted for inventory gains/losses came in at Rs12.7/12.1/7.6/share for BPCL/HPCL/IOCL versus reported EPS of Rs15.7/15.7/8.4.

Marketing margin of BPCL/IOCL improved by 2.3%/2% qoq to Rs4,143/3,860/mt. However, HPCL’s margin contracted qoq by 13.1% to Rs4,058/mt. Total debt declined by 8.3% qoq but interest cost increased by 42% qoq to Rs11.8bn due to capitalization of IOCL’s Paradip refinery which led to increase in interest cost.

Adjusting for refining inventory gain, GRM for Q3FY17 for BPCL/HPCL/IOCL came in at $3.9/4.08/5.1/bbl. Gross UR on kerosene came in at Rs16bn which was entirely compensated by the government and thus there was no burden on OMCs.

After adjusting for one-offs, core earnings of IOCL & BPCL came in-line with our estimates but HPCL missed the mark on this metric as marketing margins disappointed. However, broadly reported earnings of all three OMCs were in-line.

Hence, we expect upgrades to FY17E EPS by 20-25% with FY18 EPS following suit. Also, the OMCs look attractive on a dividend yield basis (c5% on CMP). So, we maintain our buy BUY recommendation on all the three OMCs with IOCL being our most preferred pick.

IOCL outperformed on GRM

GRM for Q3FY17 for BPCL/HPCL/IOCL came in at $5.9/6.4/7.7/bbl which implies an increase of 90% qoq on an average. Increase in GRM was mainly driven by widening of product crack spreads due to tighter demand/supply dynamics in the market and inventory gains across the OMC pack with IOCL achieving the highest GRM.

 Blended marketing margin declined

The OMC pack witnessed a decline in marketing margins on a qoq/yoy by 3.5%/9.2% yoy to Rs4,020/mt (avg. of OMCs) as HPCL’s marketing margin fell by 13.1%. Petrol’s marketing margin during YTDFY17 averaged Rs1.54/ltr while diesel’s averaged Rs1.42/ltr.

Interest cost increased qoq

Overall borrowings of all the three OMCs on a qoq basis declined by 8.3% to Rs695bn. However, interest cost increased by 42% qoq to Rs11.8bn mainly due to capitalization of IOCL’s Paradip refinery which led to increase in interest cost

Overall market share increased

For Q3FY17, IOCL lost market share by 44bps to 42.92% and HPCL/BPCL gained market share by 66/6bps to 18.67%/19.65%. Combined market share of the OMC increased by 28bps qoq to 81.2%.

Reason for lower GRM in Q3 due to commissioning of Kochi refinery’s new units, the impact (around $1/bbl) of which will be there in Q4FY17 as well. Management has indicated 80% utilisation in FY18 of the incremental 6MT capacity in Kochi refinery. Incremental benefit in terms of GRM on entire 15Mt volume is expected to be around $2/bbl while opex will increase by $0.5/bbl. The FCCU will get commissioned in Q1FY18. Kochi Tax deferral on a sustainable basis is Rs2.5bn. p.a. for 15 years.

Kochi refinery’s GRM stood at $6.1/bbl while the GRM of Mumbai refinery was at $5.75/bbl

during the quarter.

PSU market share in petrol & diesel was c95% & slightly less than 95% respectively.

Loss due to discount of 0.75%on digital payments was about Rs.180-190mn. till Dec.

2016.

Increase in other operating expenditurewas largely on account of higher transportation

expense and no one-off items.

There was a 2% increase in diesel volume growthin 9MFY17 for the oil PSUs. However, due to competition private players have grown at a faster rate versus oil PSUs.

Digital paymentsaccount for around 28% of total marketing sales currently a bulk of which comes from the loyalty program.

9MFY17 capex was Rs120bn.out which Rs60bn. was spent on the Russian acquisition. Capex for FY17 is guided at Rs125bn. excluding the Russian acquisition. FY18 capex is guided at Rs80bn. and for FY19 it is Rs105bn.

FY18 regular maintenance capexshould be Rs30bn., refining capex should be Rs.25bn., marketing capex is Rs7.5bn. & E&P capex is guided at Rs15bn.

Consolidated debt stood at Rs300-320bn. Standalone debt is Rs160bn, BPRL is

Rs140bn. and Bina debt is at Rs40bn. $ denominated debt is 90%+ of the total d

ebt balance. Debt repayment in FY17 is around $300mn. which is due in March 2017 and another $250mn. in Nov.-Dec. FY18.

Scheduled maintenanceof Kochi refinery is scheduled for Oct.-Nov. 2017.

Petchem plant-It is expected to be commissioned by the end of

2018. Out of the total capex budget of Rs46bn., Rs.4.15bn. has already been spent.

Paradip refinery-It has fully stabilised as of now with all units including secondary units

currently operating. Utilisation was 80% in the last couple of months while the full year

averageutilisation stood at 63%. Product evacuation and pipeline dispatches have also

started. VAT deferment for Paradip would be cRs18bn. on an annual basis. Interest cost

expensed would be around Rs9.5bn. p.a. going forward while depreciation should be

Rs.12bn. p.a. Opex for Paradip refinery is $2/bbl which is in-line with the opex of IOCL’s

other refineries at $1.92/bbl. Going forward, GRM will improve significantly as the Paradip refinery processes 100% high sulphur crude from FY18.

GRM-Core GRM (ex. Paradip& inventory gains) was $5.47/bbl for Q3 ($4.79/bbl in

Q2FY17) while including inventory gains, GRM (ex. Paradip) stood at $7.67/bbl. Core GRM excluding inventory gain was $4.92/bbl in 9MFY17 ($7.95 including inventory gains).

Entry tax-IOCL has been affected in the states of Bihar, UP and Haryana. Most of the

entry tax related cases might go against IOCL. Rs.1,923crores of provision has been

created for entry tax related charges and the management doesn’t expect any such

provisions going forward.

Capex guidance-FY18 capex has been guided at Rs196bn. while FY19 capex has been

guided atRs250bn.

Debt-Total DebtofRs370bn., 70% is in foreign currency and 30% is in INR terms.

Other pointers-1)Market share in MS increased in Q3. 2) Fuel & loss stood at 8.5% in

9MFY17 which is slightly lower compared to the same period last year.

Outlook and Valuation

After adjusting for one-offs, core earnings of IOCL & BPCL came in-line with our estimates but HPCL missed the mark on this metric as marketing margins disappointed. However, broadly reported earnings of all three OMCs were in-line. Hence, we expect upgrades to FY17E EPS by 20-25% with FY18 EPS following suit. Also, the OMCs look attractive on a dividend yield basis (c5% on CMP). So, we maintain our BUY recommendation on all the the OMCs with IOCL being our most preferred pick.

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