HPCL shares downgraded by JPMorgan who warns of excise duty uncertainties

Shares of state-run oil marketing companies (OMCs)fell up to 3% on Tuesday, January 20, after JPMorgan downgraded Hindustan Petroleum Corporation Ltd. (HPCL) to 'Neutral', citing valuation constraints and near-term earnings risks.

The stocks under pressure included HPCL, Bharat Petroleum Corporation Ltd

. (BPCL) and Indian Oil Corporation Ltd. (IOCL).

JPMorgan cut its rating on HPCL, pointing to limited upside due to elevated balance sheet leverage and potential earnings headwinds linked to the commissioning of the new Rajasthan refinery.

The brokerage, however, maintained its 'Overweight' stance on BPCL and IOCL within the sector.

Over the past 12 months, the three OMC stocks have risen between 23% and 30%, sharply outperforming the Nifty, which is up about 10% over the same period.

The rally has largely been driven by strong earnings upgrades. While some further upgrades to near-term earnings for FY26 remain possible, JPMorgan said revisions to FY27 estimates will be crucial to sustain further upside.

According to the brokerage, visibility on excise duty will be a key determinant. FY27 earnings for OMCs could face downside risk if fuel taxes are raised by ₹2 per litre next year, while estimates could move higher if such an increase does not materialise.

JPMorgan believes it will be difficult to make a strong case for positive FY27 revisions until there is clarity on this front.

The brokerage added that further upside in OMC stocks now hinges on either a sharp and sustained decline in crude oil prices or clear visibility on excise duty policy. With clarity on taxes unlikely in the near term, the recent rally in OMC shares may pause.

JPMorgan estimates that a $1 per barrel change in average FY27 crude oil prices could impact OMC EBITDA by around 7%.

It also flagged that central government revenue collections have been tracking below budget, increasing the possibility of additional fund mobilisation through higher excise duties.

Raising excise duty on petrol and diesel remains a potential option, as every ₹2 per litre increase could generate about ₹34,000 crore, or $3.8 billion, in additional revenue.

Such a move need not necessarily be announced in the Union Budget on February 1, 2026, as fuel taxes were last raised on April 8, 2025.

The brokerage said that there may be no definitive confirmation that excise duties will not be raised, making it challenging to argue for positive earnings revisions until the risk is conclusively addressed, potentially only if taxes remain unchanged a few months into FY27.