MarketsMOJO Upgrades Oil & Natural Gas Corporation Ltd. to Buy on Improved Technicals and Financials

Technical Trend Shift Spurs Upgrade

The primary catalyst for the rating upgrade is the marked improvement in ONGC’s technical grade, which has shifted from mildly bearish to mildly bullish. This change is supported by a mixed but increasingly positive technical picture. On a daily basis, moving averages have turned bullish, signalling upward momentum in the short term. Weekly Bollinger Bands also indicate a bullish trend, although monthly Bollinger Bands remain mildly bearish, suggesting some caution over longer horizons.

However, certain momentum indicators such as the MACD and KST remain bearish on weekly and monthly charts, while the Relative Strength Index (RSI) shows no clear signal. The On-Balance Volume (OBV) is mildly bearish weekly but neutral monthly, and Dow Theory trends are either absent or mildly bearish. Despite these mixed signals, the overall technical sentiment has improved enough to warrant a positive revision in the technical grade, reflecting growing investor confidence and potential for price appreciation.

ONGC’s share price has responded accordingly, rising 3.46% on the day of the upgrade to ₹243.85 from a previous close of ₹235.70. The stock is trading comfortably above its 52-week low of ₹205.00, though still below its 52-week high of ₹270.55, indicating room for further upside.

Valuation Remains Attractive Amid Sector Peers

ONGC’s valuation metrics continue to support the Buy rating. The company boasts a very attractive Enterprise Value to Capital Employed (EV/CE) ratio of 0.9, signalling that the stock is trading at a discount relative to its capital base. This valuation is favourable compared to peers in the oil exploration and refinery sector, where average historical valuations tend to be higher.

Additionally, ONGC offers a high dividend yield of 5.1%, which is appealing for income-focused investors. Despite a recent profit decline of 13.3% over the past year, the stock’s discounted valuation and dividend income potential provide a cushion against near-term earnings volatility.

With a market capitalisation of ₹3,06,770 crores, ONGC is the second largest company in the sector after Reliance Industries and accounts for 10.70% of the entire oil sector market cap. Its annual sales of ₹6,57,927.61 crores represent 18.91% of the industry’s total, underscoring its dominant position.

Financial Trends Show Robust Growth and Debt Management

Financially, ONGC has demonstrated strong performance in recent quarters, particularly in Q2 FY25-26. Net sales have grown at a compound annual growth rate of 12.81%, while operating profit has surged by 30.64%, reflecting operational efficiency and favourable market conditions.

The company’s ability to service debt remains strong, with a low Debt to EBITDA ratio of 1.42 times, indicating manageable leverage. Operating profit to interest coverage ratio stands at a robust 7.78 times, highlighting comfortable interest servicing capacity. Cash and cash equivalents have reached a record high of ₹47,029.75 crores, providing ample liquidity to support ongoing operations and capital expenditure.

Profit before depreciation, interest, and taxes (PBDIT) for the quarter hit ₹26,521.19 crores, further reinforcing the company’s strong earnings base. Return on Capital Employed (ROCE) is a healthy 12.6%, signalling efficient use of capital to generate profits.

Quality Assessment and Institutional Confidence

ONGC’s overall quality score, as measured by the Mojo Score, stands at 74.0, earning a Buy grade that has been upgraded from the previous Hold rating. This score reflects a combination of financial strength, operational performance, and market positioning.

Institutional investors hold a significant 37.23% stake in the company, indicating strong confidence from knowledgeable market participants who typically conduct rigorous fundamental analysis. This institutional backing adds credibility to the positive outlook and supports stock stability.

Despite underperforming the broader market over the last year—with a stock return of -4.62% compared to the BSE500’s 10.15% gain—ONGC’s longer-term returns remain impressive. Over five years, the stock has delivered a 131.80% return, nearly doubling the Sensex’s 68.97% gain, and over three years it has outpaced the benchmark with a 65.94% return versus 38.78% for the Sensex.

Risks and Market Underperformance

While the upgrade reflects a positive outlook, investors should remain mindful of certain risks. ONGC has underperformed the market over the past year, with a negative return of -4.62% compared to the broader BSE500 index’s 10.15% gain. This underperformance may reflect sector-specific challenges, commodity price volatility, or company-specific factors impacting earnings.

Moreover, some technical indicators remain bearish or neutral on longer timeframes, suggesting that the stock could face resistance or consolidation before a sustained uptrend materialises. Investors should weigh these factors alongside the company’s strong fundamentals and valuation appeal.

Conclusion: A Balanced Upgrade Reflecting Improving Fundamentals

The upgrade of ONGC’s investment rating to Buy is a considered decision based on a comprehensive analysis of technical trends, valuation metrics, financial performance, and quality scores. The shift to a mildly bullish technical stance, combined with attractive valuation ratios and robust financial health, supports a positive medium-term outlook for the stock.

Institutional confidence and strong dividend yield further enhance the stock’s appeal, despite recent market underperformance and some lingering technical caution. For investors seeking exposure to the oil sector, ONGC’s upgraded rating signals a compelling opportunity to participate in a leading company with solid growth prospects and improving market sentiment.

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