ONGC Shares Jump Nearly 6%; CLSA Sees 36% Upside After Government Cuts Oil and Gas Royalty

Overview:

• ONGC share price rose to Rs. 297.20 after the government reduced onshore crude oil royalty from 16.66% to 10% and natural gas royalty from 10% to 8%.

• Over 3.61 crore ONGC shares exchanged hands today, showing strong investor participation after the policy announcement.

• CLSA maintained its ‘High Conviction Outperform’ rating on ONGC with a target price of Rs. 405, implying an upside potential of more than 36%.

ONGC share price surged 5.77% on May 12 after the government announced lower royalty rates for crude oil and natural gas production. The stock rose to Rs. 297.20, trading close to its 52-week high of Rs. 307.50. It opened at Rs. 286.90 and gained strong momentum during the trading session.

The stock touched an intraday high of Rs. 299.90 and a low of Rs. 286.85. ONGC shares’ 52-week low stands at Rs. 228.61. The company’s market capitalisation is Rs. 3.73 lakh crore. Over 3.61 crore shares worth Rs. 1,073.62 crore exchanged hands, higher than the 20-day average volume of 1.63 crore shares. The VWAP came in at Rs. 295.73.

Why ONGC Shares Rose Today

The sharp rally in ONGC shares came after the government reduced royalty rates on oil and gas production. The news is expected to directly improve profitability for upstream oil companies.

The royalty rate on onshore crude oil production is cut down from 16.66% to 10%. Offshore crude royalty is now 8%, reduced from 9.09%. Meanwhile, natural gas royalty was lowered from 10% to 8%.

Royalty is the payment made to the government for extracting crude oil and natural gas from national reserves. Lower royalty rates mean decreased production costs and improved margins. This becomes especially important for costly deepwater and ultra-deepwater projects. Oil India shares also climbed nearly 9% as investors reacted positively to the new policy framework.

ONGC share price chart showed gains of 5.77% in the afternoon trade: 

CLSA Maintains ‘High Conviction Outperform’ Rating

Global brokerage firm CLSA described the government’s decision as a positive surprise for the sector. According to the brokerage, the lower royalty rates could increase ONGC’s fair value by 7% to 9%.

CLSA also noted that the move reduces fears around possible upstream taxation risks, including concerns linked to windfall taxes similar to those introduced in 2022. These concerns had earlier affected the performance of upstream oil companies.

The brokerage maintained its ‘High Conviction Outperform’ rating on ONGC. It kept a target price of Rs. 405 on the stock with a potential upside of more than 36%.

CLSA further stated that at Brent crude prices of around $80 per barrel, ONGC could deliver total returns of over 50%, as the stock is currently pricing in a lower crude oil assumption of nearly $65 per barrel.

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ONGC Valuation, Dividend Yield and Analyst Ratings

ONGC continues to trade at relatively attractive valuations compared to broader market levels. The stock has a trailing twelve-month PE ratio of 9.85, slightly below the sector PE of 10.33. TTM EPS stood at Rs. 30.15, although earnings declined 2.59% year-on-year. The stock has a beta of 0.26, indicating lower volatility compared to the broader market.

The company’s book value per share is Rs. 301.76, while its price-to-book ratio is 0.99. ONGC also offers a dividend yield of 4.12%, making it attractive for long-term investors seeking regular income.

Analyst sentiment remains largely positive. Out of 30 analysts tracking the stock on Moneycontrol, 50% have given a ‘Buy’ rating, while 13% recommended ‘Outperform.’ Around 17% suggest ‘Hold’, showing caution.

What Investors Should Watch Next

Investors will now closely monitor crude oil prices, future government policy decisions, and ONGC’s earnings outlook. Higher oil prices generally support upstream companies as they improve revenue realisations. If crude prices remain firm and policy support continues, ONGC share price could climb further, much to the delight of traders and long-term investors.

Also Read: US Stock Market Today: S&P 500 Rally Slows as Trump Rejects Iran Proposal and Crude Prices Climb

FAQs

1. Why did ONGC shares rise today?

ONGC share price gained strongly after the government reduced royalty rates on crude oil and natural gas production. Lower royalty payments reduce operating costs for upstream companies like ONGC. Investors believe this move will improve the company’s profit margins and earnings outlook. The policy change also boosted overall sentiment in the oil and gas sector, leading to strong buying activity in ONGC shares.

2. What are the new oil and gas royalty rates?

The government reduced the royalty rate on onshore crude oil production from 16.66% to 10%. Offshore crude royalty was lowered from 9.09% to 8%, while natural gas royalty was reduced from 10% to 8%. These lower rates are expected to reduce costs for oil producers and support investment in exploration and production activities, especially in deepwater projects.

3. What is the target price for ONGC shares?

Global brokerage firm CLSA has maintained its “High Conviction Outperform” rating on ONGC and given the stock a target price of Rs. 405. Based on the current share price of around Rs. 297, the brokerage sees an upside potential of more than 36%. CLSA also said the royalty cut could increase ONGC’s fair value by around 7% to 9%.

4. Is ONGC stock a good buy for long-term investors?

Many analysts believe ONGC still looks attractive because of its low valuation, strong dividend yield, and government support for the oil and gas sector. The stock currently trades at a PE ratio of 9.85 and offers a dividend yield of 4.12%. Analysts also expect higher oil prices and lower royalty costs to support earnings growth in the coming quarters.

5. What should investors look out for while buying ONGC shares?

Investors should closely watch crude oil prices, government policy decisions, and ONGC’s future earnings performance. Higher global crude prices generally help upstream companies because they increase revenue realisations. Investors will also monitor whether the recent royalty cuts lead to stronger profitability and more investment in exploration projects over the next few quarters.