Macquarie Backs HPCL, Upgrades Petronet LNG for 2026

Introduction: A Positive Outlook Amidst Market Volatility

Despite near-term weakness in the shares of state-run oil marketing companies (OMCs), brokerage firm Macquarie remains constructive on the Indian oil and gas sector. The firm has identified Hindustan Petroleum Corporation Ltd. (HPCL) as its preferred choice among OMCs and has upgraded Petronet LNG, signaling confidence in the downstream and midstream segments. This positive stance comes even as global macroeconomic uncertainties persist and other brokerages, such as JPMorgan, express caution on specific stocks within the sector.

Macquarie's Core Thesis: Softer Commodity Prices

Macquarie's optimism is fundamentally rooted in its bearish outlook on global energy prices. The brokerage forecasts that Brent crude will average $11 per barrel, while spot LNG prices are expected to be around $1.40 per mmBtu in 2026. This projection of a softer commodity price environment is central to its positive medium-term thesis. For gas companies and oil marketers, lower input costs typically lead to improved margins and profitability, positioning them to benefit significantly over the financial years 2027 and 2028.

Diverging Views on Oil Marketing Companies

The oil marketing space is currently seeing divided opinions from analysts. Macquarie has clearly stated its preference for HPCL over Bharat Petroleum Corporation Ltd. (BPCL) and Indian Oil Corporation Ltd. (IOCL). However, this view contrasts with a recent report from JPMorgan, which downgraded HPCL to 'Neutral'. JPMorgan's downgrade was based on concerns over valuation constraints, elevated balance sheet leverage, and potential earnings risks associated with the commissioning of the new Rajasthan refinery. Despite its caution on HPCL, JPMorgan maintained its 'Overweight' stance on both BPCL and IOCL, highlighting the nuanced perspectives currently shaping investment strategies in the sector.

Market Performance on January 23

Reflecting the mixed sentiment and broader market trends, shares of OMCs traded lower on Friday, January 23. The performance of key players underscores the cautious mood among investors.

Spotlight on Petronet LNG: A Growing Bullish Consensus

While views on OMCs are split, a strong positive consensus appears to be forming around Petronet LNG. Macquarie upgraded the stock to 'Outperform' from 'Underperform', raising its price target to ₹310 per share. The brokerage cited improving fundamentals amid a favorable pricing outlook as the key driver for the upgrade.

Adding to this sentiment, Investec has designated Petronet LNG as its 'top pick' for 2026, issuing a 'Buy' rating with an ambitious price target of ₹400. This implies a potential upside of 44% from its recent closing price. Investec's bullish case is built on the expectation of a 7% surge in global LNG supply in 2026, the fastest growth since 2019. This supply boom, led by producers in the US, Canada, and Qatar, is expected to create a benign pricing environment that directly benefits major importers like India.

Petronet's Strategic and Operational Strengths

Petronet LNG is well-positioned to capitalize on these favorable market dynamics. The company has successfully completed the capacity expansion of its Dahej plant to 22.5 MMTPA. This enhanced capacity, combined with its existing long-term contracted volumes, provides strong downside protection. Furthermore, Petronet's superior connectivity and infrastructure give it an advantage in capturing incremental spot volumes as prices soften. Analysts note that after a significant stock price correction over the past year due to cyclical import weakness, Petronet LNG is now trading below its historical valuation multiples, presenting what many see as an attractive entry point for investors.

Analyst Coverage and Future Outlook

The broader analyst community reflects this positive but varied outlook. Out of 34 analysts covering Petronet LNG, 15 maintain 'Buy' ratings, 10 have 'Hold' recommendations, and nine suggest 'Sell'. The convergence of a global LNG oversupply, stabilizing domestic demand, and Petronet's expanded operational capacity forms the basis for the optimistic forecasts from firms like Macquarie, Investec, and Motilal Oswal, which also holds a positive view with a ₹410 price target.

Conclusion

In summary, Macquarie's outlook for the Indian oil and gas sector is positive, driven by a forecast of lower global energy prices. While its preference for HPCL is contested by other market analysts, the conviction around Petronet LNG is becoming more widespread. Supported by significant global LNG supply growth and its own strategic capacity expansions, Petronet LNG appears well-equipped to navigate the evolving energy landscape and deliver value to its shareholders in the coming years.