Rupee Hits Record Low: What It Means for India’s Oil and Gas Sector

The Indian rupee has fallen to a record low of 88.34 against the US dollar, creating ripple effects across industries. While the depreciation is favourable for some companies, particularly IT firms that earn in dollars, it poses challenges for others due to rising import costs. The impact varies depending on the sector and business model. Here is a breakdown of how different companies are affected by the weakening currency.

ONGC and Oil India: Beneficiaries of a Weak Rupee

For state-run upstream oil explorers like ONGC and Oil India, a depreciating rupee translates into higher earnings. According to ICICI Securities, every ₹1 depreciation against the US dollar boosts their standalone Earnings Per Share (EPS) by 1% to 2%. Oil India stands to gain even more due to the Gross Refining Margin (GRM) advantage from the Numaligarh Refinery. This makes the falling rupee a net positive for upstream explorers.

Petronet LNG: Stronger Margins with Dollar Linkage

Petronet LNG is another beneficiary, as its regasification margins are directly linked to the dollar. Regasification involves heating liquefied natural gas (LNG) back to its gaseous state for distribution through pipelines. ICICI Securities estimates that each ₹1 depreciation against the dollar improves Petronet’s EPS by 1% to 3%. This gives the company a cushion against currency fluctuations.

Reliance Industries: Mixed Impact Across Segments

Reliance Industries (RIL) faces a more complex scenario. On one hand, a weak rupee increases input costs due to higher prices for crude, LNG and ethane. On the other hand, the company benefits from stronger realisations in refining, petrochemicals and upstream operations. The net impact, however, is slightly negative, with ICICI Securities estimating a hit of 1% to 1.3% to RIL’s EPS for every ₹1 fall against the dollar.

Oil Marketing Companies: Gains Cancelled by Margin Pressure

Hindustan Petroleum (HPCL), Bharat Petroleum (BPCL) and Indian Oil Corporation (IOC) experience both positives and negatives from a weaker rupee. While refining gains boost their earnings, compression in refining margins reduces the overall advantage. ICICI Securities calculates that their EPS could see a net negative impact of around 11% for every ₹1 weakening against the dollar.

City Gas Distributors: Facing Cost Pressures

Companies like Indraprastha Gas (IGL) and Mahanagar Gas (MGL) are among the worst hit. A depreciating rupee raises LNG procurement costs, and the limited scope for passing these costs onto consumers worsens the situation. ICICI Securities expects their EPS to decline between 4% and 11% for every ₹1 fall in the rupee against the dollar, highlighting the vulnerability of city gas distributors.

Broader Market Implications

The currency movement underscores the uneven impact of rupee depreciation across sectors. Export-driven and upstream energy companies tend to benefit, while import-dependent sectors and city gas distributors face headwinds. For investors, this highlights the importance of sector-specific analysis before making decisions in a volatile currency environment.