MarketsMOJO Downgrades Oil & Natural Gas Corporation Ltd. to Hold Amid Mixed Technical and Financial Signals

Quality Assessment: Stable Fundamentals Amid Flat Quarterly Performance

ONGC’s quality metrics remain steady, supported by its strong ability to service debt with a low Debt to EBITDA ratio of 1.42 times. The company’s long-term growth trajectory is healthy, with net sales growing at an annualised rate of 13.44% and operating profit margin at a robust 37.24%. Return on Capital Employed (ROCE) is solid at 12.56%, indicating efficient utilisation of capital. However, the latest quarterly results for Q3 FY25-26 were flat, signalling a pause in momentum that tempers enthusiasm.

Despite the flat quarter, ONGC’s financial discipline and operational efficiency underpin its quality grade, which remains unchanged. The company’s debtor turnover ratio, at 31.33 times for the half-year, is among the best in the sector, reflecting effective receivables management. Institutional holdings remain high at 37.41%, suggesting confidence from sophisticated investors who typically conduct rigorous fundamental analysis.

Valuation: Upgraded to Very Attractive on Strong Metrics

Valuation is the standout positive factor in the recent rating change. ONGC’s valuation grade was upgraded from Attractive to Very Attractive, driven by compelling multiples relative to peers and historical averages. The stock trades at a price-to-earnings (PE) ratio of 9.12, significantly lower than Reliance Industries’ 23.22 and comparable to other sector leaders like IOCL and BPCL, which also enjoy very attractive valuations.

Other valuation metrics reinforce this view: Price to Book Value stands at 0.94, Enterprise Value to EBIT at 7.53, and Enterprise Value to EBITDA at 4.73. The PEG ratio is effectively zero, indicating the stock is undervalued relative to its earnings growth potential. Additionally, ONGC offers a healthy dividend yield of 5.00%, providing income alongside capital appreciation potential. These factors collectively justify the very attractive valuation grade.

Financial Trend: Mixed Signals with Flat Quarterly Results but Strong Long-Term Growth

While ONGC’s recent quarterly financial performance was flat, the company’s longer-term financial trends remain encouraging. Over the past year, the stock has delivered a return of 14.88%, outperforming the Sensex’s 10.60% return. Over three and five years, ONGC’s returns have been even more impressive at 78.09% and 145.63% respectively, significantly outpacing the Sensex benchmarks of 39.74% and 67.42%.

However, profits have declined by 5.4% over the past year, indicating some pressure on earnings despite revenue growth. The company’s annual sales of ₹6,59,253.86 crores represent 18.66% of the oil exploration and refinery industry, underscoring its market leadership. ONGC’s market capitalisation of ₹3,46,712 crores makes it the second largest company in the sector, accounting for 11.87% of the sector’s total market cap.

Technical Analysis: Downgrade Driven by Weaker Momentum Indicators

The primary driver behind the downgrade from Buy to Hold is a deterioration in technical indicators. ONGC’s technical trend has shifted from bullish to mildly bullish, signalling a loss of upward momentum. Weekly MACD remains bullish, but monthly MACD has turned mildly bearish, reflecting weakening longer-term momentum. The weekly Relative Strength Index (RSI) is bearish, while the monthly RSI shows no clear signal, indicating uncertainty in price strength.

Bollinger Bands suggest a mildly bullish weekly trend and a bullish monthly trend, but other indicators such as the Know Sure Thing (KST) oscillator have weakened from weekly bullish to mildly bearish monthly readings. Dow Theory analysis shows no clear weekly trend and only a mildly bullish monthly trend. On-Balance Volume (OBV) is flat weekly but bullish monthly, suggesting volume support is inconsistent.

Daily moving averages remain bullish, but the mixed signals across weekly and monthly timeframes have prompted a more cautious technical outlook. The stock’s price closed at ₹275.60 on 24 February 2026, down 1.11% from the previous close of ₹278.70, trading near its 52-week high of ₹280.80 but well above its 52-week low of ₹205.00.

Comparative Performance and Sector Positioning

ONGC’s performance relative to the broader market and its sector peers remains strong over multiple time horizons. The stock’s one-month return of 12.24% significantly outpaces the Sensex’s 2.15%, while year-to-date returns are 14.71% compared to the Sensex’s negative 2.26%. Over the last decade, however, ONGC’s 92.77% return trails the Sensex’s 255.80%, reflecting the broader market’s outperformance in recent years.

Within the oil exploration and refinery sector, ONGC is a dominant player, second only to Reliance Industries. Its valuation metrics are more attractive than Reliance’s, with a PE ratio of 9.12 versus Reliance’s 23.22, and EV/EBITDA of 4.73 compared to Reliance’s 11.66. This discount to peers’ valuations highlights ONGC’s appeal for value-oriented investors.

Outlook: Hold Rating Reflects Balanced View Amid Mixed Signals

The downgrade to Hold reflects a balanced assessment of ONGC’s investment case. While valuation remains very attractive and the company’s financial health is stable, the weakening technical indicators and flat recent quarterly results suggest caution. Investors should monitor upcoming earnings releases and technical developments closely before considering a renewed Buy stance.

ONGC’s high dividend yield of 5.00% provides a cushion for investors, and its strong institutional ownership indicates confidence in the company’s long-term prospects. However, the mixed signals from technical analysis and profit pressures warrant a more measured approach at current levels.

Summary of Ratings and Scores

As of 23 February 2026, ONGC’s Mojo Score is 68.0 with a Hold grade, downgraded from Buy. The valuation grade has improved to Very Attractive, while the technical grade has weakened from bullish to mildly bullish. Financial trends remain stable but flat in the short term, and quality metrics continue to reflect solid fundamentals. Market cap grade remains at 1, consistent with ONGC’s status as a large-cap heavyweight in the oil sector.

Investors seeking exposure to the oil sector should weigh ONGC’s attractive valuation and dividend yield against the current technical caution and flat earnings growth. The company’s market-beating returns over the medium to long term remain a positive, but near-term momentum appears subdued.

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