ONGC

A
PROJECT REPORT ON ANALYSIS

OF
OIL AND GAS SECTOR
Submitted in partial fulfillment of the

requirements for the Post Graduate Diploma in
Management
SUBMITTED TO:
BIJOY SIR
SUBMITTED BY:
Group: 1
AMRITA KUMARI (62)
New Delhi Institute of Management Page 1

KHUSHBU KUMARI (70)
NIDHI GUPTA (87)
POOJA RANI (93)
SUMIT SRIVASTAVA (117)
Acknowledgement
This journey into project methodology would have been a travesty had it not been for the
guidance, assistance, encouragement and moral support from many. It would be unjust if we
do not commence this study by acknowledging their efforts.
First of all we would like to thank BIJOY SIR, for his able support during the course of our
project. His innovative ideas provided us clarity of thought essential in completing this
project.
His uncompromising demand for logical conclusions, quality of presentation, originality of

work and novelty of ideas has benefited every single page of this study. We shall always
remain grateful to him and no words of thanks can compensate for the liberty that we had
been given to encroach upon whatever little spare time he had at their disposal.
Finally, we would like to thank all those who contributed, in whatever way, to the successful
completion of the project

Table of Contents
Acknowledgement
Chapter 1. Executive Summary…………………………………………..………………..4
Chapter 2. Introduction…………………………………………………........................…5
Chapter 3. Economic Analysis………………………………………………………….…6

3.1 Global Economy………………………………................................6
3.2 Indian Economy……………………………………………….……6
3.3 Economic Indicators……………………………………….....…….7
Chapter 4. Industry Analysis……………………………………………………………...13

4.1 Industry Overview………………………………………………...13
4.2 Porter’s Five Forces Model………………………………………..14
4.3 SWOT Analysis…………………………………………………....16
4.4 BCG Matrix………………………………………………………..18
4.5 Industry Life Cycle………………………………………………...19
4.6 Industry Index Analysis…………………………………………....20
Chapter 5. Company Analysis…………………………………………………………......21

5.1 Company Overview…………………………………………...…...21
5.2 Ratio Analysis………………………………………………...…....23
5.3 Chairman’s Profile………………………………………….……...25
5.4 Future Projects……………………………………………………..26

Chapter 6. Comparative Analysis……………….................................................................27
.
Chapter 7. Technical Analysis…………………………………..........................................28
7.1 The DOW Theory……………………………………………..…...28

7.2 Elliott Wave Theory………………………………………………..30
7.3 Comparison of BSE SENSEX with share prices of ONGC……….31
7.4 Analysis of Chart Patterns……………………….………………...32
7.5 Bollinger Band Analysis…………………………………………...33
7.6 MACD Analysis…………………………………………………...34
7.7 Exponential Moving Average……………………………………...35
7.8 Relative Strength Index…………………………………………....36
Chapter 8. Recommendations & Suggestions…………………………...............................37
Chapter 9. Conclusion……………………………………………………......................….38
Chapter 10. Bibliography………………………………………………….....................….39

Annexures
Abbreviations
Executive Summary
The project Equity Analysis of ONGC involves a complete research on ONGC and
understands the movement of company’s shares listed in BSE and NSE. ONGC is the
biggest company in India in terms of profit generation.
The project is broadly divided into two analyses: fundamental and technical analysis. The
fundamental analysis answers the question whether the share is worth investing or not at the
present time as compared to its competitors. In Fundamental analysis, the performance of the
company in the last year is considered. The performance of the company is a crucial factor
behind taking the decision of investment in that particular company on a long term basis.
Every investor wants to get the maximum return on his/her investment and that’s why it is
always good to see the growth prospects of the company in the future.
The fundamental analysis gives vital information about the valuation of the company,
whether the company is undervalued or overvalued. As far as ONGC is concerned, it has got
very strong fundamentals which are very crucial for the long term prospect of the company.

As far as fundamentals are concerned, the share is good to invest in, and will yield a good
return after a period of at least 10-12 months. The risk in the scrip is also relatively low and
the kind of investment that the company is planning to make will surely help the company
improve its earnings or sales. This will enhance the EPS ratio for the company and the
overall valuation of the company is going to be attractive. Also, with the proposed hike in the
Gas price by the government is only going to help the company to improve its income and
further strengthen its balance sheet and these are all positive signals for the company as well
as the investors who are willing to invest for long term in the market. Overall, the scrip is a
good buy but only after the current correction phase is over from the market.
The technical analysis on the other hand, answers the question like when to buy and when to
sell. A good technical analysis helps to gain in either movement of the price of the share. The
technical analysis is carried out mainly on the belief that the trends repeat themselves. The
technical indicators are pointing towards a strong possibility of upcoming secondary trend in
the scrip. The scrip has gained more than 50% over its value from March this year. This is
too fast a recovery and the valuations are a bit on the higher side right now, but after the
secondary phase of correction the scrip is going to move up as positive global and Asian cues
will help the Indian stock market to march further in the north direction and the scrip having
a good correlation with the sensex is surely going to appreciate further from this level.
Therefore, the scrip is going to provide a good investment opportunity for the investors who
are willing to take a long position on the scrip.
Introduction: OIL and GAS Sector

The oil and gas history in India dates back to 1867, with the discovery of oil deposits in
Makum, near Margherita, Assam. The oil and gas sector in India has since witnessed the
birth of numerous oil and gas companies. The oil & gas fields both on shore and offshore
provides mass employment opportunities and also contribute in a wholesome way in
increasing the oil & gas reserves of India. The oil & gas prices are still a matter of utmost
concern for the Government of India.
The Global Scenario: - Globally, the oil & gas sector is dominated by certain large private
companies who have a presence in almost all segments of the oil & gas value chain.
Historically, oil price has been the single most important challenge facing the global oil
industry. The problem is all the more acute as the large private companies account for only a
small share of world oil production even as oil prices remain unpredictable and prone to wide

fluctuations. Given this backdrop, global oil majors are now increasingly benchmarking their
production costs against the oil production costs of the OPEC (Organization of Petroleum
Exporting Countries), and increasingly relying on technological innovations and other cost
cutting measures to lower their own production costs.
Indonesia the only South East Asian nation in the Organization of Petroleum Exporting
Countries (OPEC) is struggling to keep up with its oil production quotas within the OPEC
and reduced to the status of a net oil importer.
According to the US Energy Information Administration (EIA), Indonesia’s crude oil
output has fallen to low levels to ageing oil fields. The Asian financial crisis in 1997-98
also shattered the confidence of the nation and investment in oil exploration has stagnated.
Since then Indonesia’s production, largely concentrated in northern Sumatra region, has
come to a standstill.
Indonesia is not the only oil exporting nation exporting nation experiencing production
problems; several of the major oil producers immediately need to address the drying
output. Every year demand for oil is increasing by 1.5%, while production yield is
decreasing by 8%. Algeria , Malaysia, Mexico seem to be facing problems in their quest
to bridge this gap. The production of OPEC members such as Iran, Nigeria and
Venezuela, as well as Mexico and Russia, which sit at OPEC`s table as observers , is also
declining .
OPEC`s lack of meaningful excess capacity, with the sole exception of Saudi Arabia, has
indeed reduced its market power from the levels of the 1990s. That said, OPEC as a
whole controls roughly 40% of global oil production and 65% of known oil reserves.
This means that OPEC remains an important influence on the oil market, but its
effectiveness will increasingly be measured by the ability to restrain further increase in
oil prices, not enforce a price floor.
Economic Analysis
Global Economy:
The world economy is stabilizing, helped by unprecedented macroeconomic and financial
policy support. However, the recession is not over and the recovery is likely to be sluggish.
Following a disappointing first quarter, during which the global economy contracted almost
as fast as during the fourth quarter of 2008, (Figure 1-Annexure I), high-frequency data point
to a return to modest growth at the global level (Figure 2-AnnexureI). However, the
advanced economies as a group are still projected not to show a sustained pickup in activity
until the second half of 2010, consistent with the April 2009 WEO forecast. Accordingly,
global activity is forecast to contract by 1.4 percent in 2009 and to expand by 2.5 percent in

2010, which is 0.6 percentage point higher than envisaged in the April 2009 WEO (Table1-
Annexure II). The higher annual average growth rate for 2010 largely reflects carryover from
a mark up in growth during the final half of 2009. On a fourth-quarter-over-fourth quarter
basis, real GDP growth is projected at 2.9 percent in 2010, compared with 2.6 percent in the
April WEO forecast.
Source: WEO July, 09: IMF
The Indian Economy:

Indian Economy has covered a long ground since it was liberalized in 1991. Today, The
Indian economy is the twelfth largest in the world by market exchange rates and the fourth
largest in the world by GDP measured on purchasing power parity (PPP) basis behind only
the USA, China, and Japan, according to the CIA, The World Fact Book. It is slated to
overtake Japan and become the third major economic power in the next ten years. Quarterly
gross domestic product (GDP) at factor cost at constant (1999-2000) prices for Q3 of 2008-
09 is estimated at US$ 171.24 billion, as against US$ 162.57 billion in Q3 of 2007-08,
showing a growth rate of 5.3 per cent over the corresponding quarter of previous year.
Despite the global slowdown, the Indian economy is estimated to have grown at close to 6.7
per cent in 2008-09. The Confederation of Indian Industry (CII) pegs the GDP growth at 6.1
per cent in 2009-10. This scenario factors in sectoral growth rates of 2.8-3 per cent, 5-5.5 per
cent and 7.5-8 per cent, respectively, for agriculture, industry and services.
Despite robust economic growth, India continues to face several major problems. The recent
economic development has widened the economic inequality across the country. Despite
sustained high economic growth rate, approximately 80% of its population lives on less than
$2 a day (PPP), more than double the same poverty rate in China, according to Human
Development Report, UN published in 2007/08.
Let’s take a look at the Macroeconomic Indicators that affects the Indian Economy and
the Oil & Gas Industry as well.
Gross Domestic Product:
GDP is commonly used as an indicator of the economic health of a country, as well as to

gauge a country's standard of living. As per the Revised Estimates (RE) of Central Statistical
Organization (CSO), Ministry of Statistics and Programme Implementation, the Gross
Domestic Product (GDP) at factor cost at constant (1999-2000) prices is estimated at 6.7 per

cent in 2008-09 as compared to 9.0 per cent in 2007- 08 (Quick Estimate, see Table 1.3-
Annexure III). At disaggregated level the growth during 2008-09 (RE) comprises of growth
of 1.6 per cent in Agriculture and allied activities, 3.9 per cent in Industry and 9.7 per cent in
Services as compared to 4.9 per cent, 8.1 per cent and 10.9 per cent respectively during
2007-08 (QE).
The slowdown in growth of GDP is more clearly visible from the growth rates over
successive quarters of 2008-09. In the first two quarters of 2008- 09, the growth in GDP was
7.8 and 7.7 per cent respectively. The growth fell to 5.8 per cent in the third and in the fourth
quarters of 2008-09 (compared to 9.3 and 8.6 per cent in Q3 and Q4 of 2007-08). The third
quarter witnessed a sharp fall in the growth of manufacturing, construction, trade, hotels and
restaurants. Agriculture growth also turned negative adding a further dampener. On the other
hand, community, social and personal services showed a large increase from the second
quarter, mainly due to a step up in government expenditure. The last quarter saw an added
deterioration in manufacturing due to the deepening impact of the global crisis and a
slowdown in domestic demand (Table 1.4-Annexure III).
The performance of six core industries comprising crude oil, petroleum refinery products,
coal, electricity, cement and finished steel (carbon) grew at 2.7 per cent as compared to 5.9
per cent in 2007-08. The growth in index for crude oil turned negative 1.8 per cent as
compared to positive 0.4 per cent in 2007-08. There was a deceleration in the growth of
cement and finished steel reflecting the negative sentiments in the construction and
manufacturing sectors.
Source: Monthly Economic Report June 09, Ministry of Finance; Economic Survey 2008-09
Exchange Rate:
The surge in the supply of foreign currency in the domestic market led inevitably to a rise in
the price of the rupee. The rupee gradually appreciated from Rs. 46.54 per US dollar in
August 2006 to Rs. 39.37 in January 2008, a movement that had begun to affect profitability
and competitiveness of the export sector. The global financial crisis however reversed the
rupee appreciation and after the end of positive shock around January 2008, rupee began a
slow decline. For the year as a whole, the nominal value of the rupee declined from Rs. 40.36
per US dollar in March 2008 to Rs. 51.23 per US dollar in March 2009, reflecting 21.2 per
cent depreciation during the fiscal 2008-09. The exchange rate was Rs. 51.20 per US dollar
in March 2009. The annual average exchange rate during 2008-09 worked out to Rs. 45.99

per US dollar compared to Rs. 40.26 per US dollar in 2007-08. Currently, the exchange rate
seems to be in the range of Rs. 47-49. The exchange rate has had a very big impact on the
financial health of the Indian companies.
Monetary Policy Developments:
In India, the main objective of the monetary policy has been to control the inflation and
ensure availability of credit to the common people. The monetary measures are taken by RBI
from time to time to ensure the smooth functioning of Indian Economy. This was quite
evident in the last year when the prices of commodities were rising to an unsustainable level;
RBI gradually tightened the monetary measures and hiked the key rates like CRR, Repo Rate
to suck the excess liquidity out of the system to ensure that it doesn’t reach to an
unmanageable level. The Repo Rate and the CRR were hiked to 9% in August last year. This
was the first time since October 2000 that repo has touched 9 per cent while CRR touched 9
per cent for the first time since late November 1999. But the scenario changed from
September 2008 and the impact of recession started being visible in the Indian market as
well. The RBI stepped in again and took several measures to gain control over the situation.
Since September 2008, the policy repo rate has been reduced by 425 basis points, the reverse
repo rate has been brought down by 275 basis points and the actual/potential liquidity
injection/availability was over Rs.5,61,700 crore (excluding Rs. 40,000 crore under SLR
reduction). The liquidity enhancing measures taken by the RBI since mid-September 2008,
ensured availability of ample liquidity in the banking system, which was evident in the large
and regular absorption of the surplus from the system through LAF by the Reserve Bank.
Source: 1st Quarter Review of Monetary Developments, RBI
Fiscal Policy Developments:
Because of recession, the government took several fiscal policy decisions since October last
year to revive the demand in the Indian economy. To counter the negative fallout of the
global slowdown on the Indian economy, the Government responded by providing three
focused fiscal stimulus packages in the form of tax relief to boost demand and increased
expenditure on public projects to create employment and public assets. This fiscal
accommodation led to an increase in fiscal deficit from 2.7 per cent in 2007-08 to 6.2 per
cent of GDP in 2008-09. The difference between the actuals of 2007-08 and 2008-09
constituted the total fiscal stimulus. This fiscal stimulus at 3.5% of GDP at current market
prices for 2008-09 amounts to Rs.1,86,000 crore. The Fiscal packages announced by the
government did play a big role in achieving the growth rate of 6.7% this fiscal and huge

government spending is expected to revive the demand in the economy to a considerable
extent.
Source: Union Budget 2009-10

Union Budget 2009-10:
The impact of the Union Budget 2009-10 is expected to be marginally positive for the oil and
gas sector. The extension of tax holiday under Section 80-IB on natural gas production with
retrospective effect is expected to lead to better response to future NELP rounds. Although
the MAT credit period has been extended from 7 years to 10 years, the increase in MAT rate
from 10 per cent to 15 per cent is expected to lead to higher initial tax outflow. Given the
expected increase in oil and gas production, the allowance of 100 per cent deduction for all
capital expenditure on pipelines operating on a common carrier principle (both oil and gas),
will ensure a better reach for distribution of the same. Further, the government has reiterated
its commitment of creating a National Gas Grid.
Balance of Payment:
Despite higher net invisibles surplus (7.7 per cent of GDP), the large trade deficit (10.3 per
cent of GDP) led to a higher current account deficit (CAD) of 2.6 per cent of GDP during
2008-09. Notwithstanding the adverse impact of the global crisis, software services exports
(4.1 per cent of GDP) and private transfer receipts (4.0 per cent of GDP) were higher during
2008-09 than the previous year. Net capital inflows (0.8 per cent of GDP) were much lower
as compared with the previous year mainly due to net outflows under portfolio investment,
banking capital and short term trade credit. In the capital account, inflows under foreign
direct investment (FDI) to India were higher during 2008-09 than the previous year
reflecting the attractiveness of India as a long-term investment destination. NRI deposits
witnessed higher inflows since September 2008 responding to the hikes in ceiling interest
rates on such
deposits. Despite apprehensions in the second half of 2008-09 on the availability of short-
term trade credit due to tightness in the global credit markets, the gross disbursements
reached US$ 39.7 billion during 2008-09, while repayments stood at US$ 45.5 billion. The
gap between the disbursements and repayments of short-term trade credit to India was
limited to an outflow of US$ 5.8 billion during 2008-09. Thus, financing of short-term trade
credit did not pose much of a problem in India. The foreign exchange reserves on BoP basis
(i.e., excluding valuation) declined mainly due to higher current account deficit coupled with
lower net capital inflows.
Source: RBI Bulletin July 2009.

Foreign Trade:
Due to sharp decline in exports during the second half of 2008-09, India’s merchandise
exports, on a BoP basis, posted a lower growth of 5.4 per cent during 2008-09 (28.9 per cent
in the corresponding period of the previous year). Reflecting the impact of the global
financial crisis, the merchandise trade performance suffered drastically during the second
half of 2008-09 leading to sharp decline in exports and imports. According to the data
available from the DGCI&S, both exports and imports declined by 20.0 per cent and 16.6 per
cent, respectively, during the second half of 2008-09 as against an increase of 32.4 per cent
and 53.1 per cent, respectively, in the first half of 2008-09. The fall in exports was more
pronounced in the Q4 of 2008-09 at 27.6 per cent as compared with a decline of 10.8 per
cent observed in Q3 of 2008-09. On the other hand, growth in imports, after slowing down to
8.9
per cent in Q3 of 2008-09 collapsed in Q4 of 2008-09 witnessing a sharp decline of 35.9 per
cent. The growth in non-oil imports slowed down to 13.2 per cent in 2008-09 from 33.6 per
cent in the previous year. In absolute terms, oil imports accounted for about 32.4 per cent of
total imports during 2008-09 (31.7 per cent in 2007-08). The sharp increase in oil prices
averaging US$ 116.5 per barrel during the first half of 2008-09 led to an increase in oil
import payments during this period. With the decline in oil prices during the second half of
2008-09 (average of US$ 48.3 per barrel), the oil import payments came down significantly.
For the full year 2008-09, however, the oil import payments were higher at US$ 93.2 billion
as compared with US$ 79.7 billion in the previous year. According to the DGCI&S data, out
of the total increase in imports of US$ 36.3 billion in 2008-09 over the previous year, oil
imports contributed to an increase of US$ 13.5 billion (37.2 per cent in 2008-09 as compared
with 34.3 per cent in 2007-08).
Source: RBI Bulletin July 2009.
Monsoon
If in a country there is a healthy monsoon this would lead to increase in the income of the
farmers due to which they will be able to save more as such India has more than 60% of
people engaged in agriculture thus leading to increased demand for oil and oil products.
Recession
In economics, a recession is a general slowdown in economic activity over a sustained period

of time, or a business cycle contraction. During recessions, many macroeconomic indicators
vary in a similar way. Production as measured by Gross Domestic Product (GDP),

employment, investment spending, capacity utilization, household incomes and business
profits all fall during recessions. Economists at the International Monetary Fund (IMF) state
that a global recession would take a slowdown in global growth to three percent or less. By
this measure, four periods since 1985 qualify: 1990–1993, 1998, 2001–2002 and 2008–2009.
Official economic data shows that a substantial number of nations are in recession as of early
2009. The US entered a recession at the end of 2007, and 2008 saw many other nations
follow suit. The global financial meltdown and consequent economic recession in developed
economies have clearly been major factor in India’s economic slowdown. The deceleration
of growth in 2008-09 was spread across all sectors except mining & quarrying and
community, social and personal services. The fallout of the global financial crisis on the
Indian economy has been palpable in the industry and trade sectors and has also permeated
the services sector. While some segments, especially the export-oriented industries, suffered
during the second half of the year, the Indian economy has withstood the adverse global
economic situation and posted a growth rate of 6.7 per cent in 2008-09. The economy
continues to face wide-ranging challenges— from improving its social and physical
infrastructure to enhancing the productivity in agriculture and industry and addressing
environmental concerns. Meeting these challenges will be critical for improving India’s
social and human development indicators and the quality of life.
Index of Industrial Production:
There is visible link between trends in IIP and the growth in revenues of the CNX-500
companies over the past six years. According to an article published in Business Line, dated
April 6, 2008 the two parameters were said to be positively correlated with a correlation co
efficient of close to 0.79. The correlation indicates that if the IIP numbers point to a possible
slowdown, then corporate earnings numbers may well be headed the same way, unless higher
agricultural growth or a far superior performance from the services sector offsets such a
slowdown. Over the period of analysis, IIP and revenue growth have moved mostly in
tandem, with only a few quarters of divergence. From a period of slow growth in early 2001,
both the parameters have made a sharp comeback, accelerating sharply since 2005; the latest
numbers only confirms this correlation as the positive numbers of IIP in the past few months
are preceded by a surge in the stock market. With the projected rise in demand in the
economy and the improving global financial condition, the manufacturing sector is poised for
a good show in the coming months. The improved earnings will definitely push the IIP
numbers in the north direction. The graph below shows the growth (in %) in IIP from April
2008.
IIP Growth Rate (in %) April 08 – June

09

Source: mospi.nic.in
Inflation:
A moderate amount of inflation is important for the proper growth of an economy like India
because it attracts more private investment. The RBI has followed a policy of keeping the
inflation in the range of 4-5% over the past decade. The inflation has been more or less under
control over the past decade but rise in the prices of fuel and the food articles last year
pushed the inflation rate to an unprecedented high level of 12.91% for the week ended 02nd
August, 2008. The average inflation rate for the year 2008 was seen at 9.11% (the average of
52-week inflation rate) and was even higher if we consider the period Jun-Oct last year when
the average was 12.09% with the figure of inflation for the entire period was in double-digit.
This was the time when the price of crude oil reached to a peak of $145 per barrel and the
government had no other price but to hike the price of fuel for the Indian consumers also as
India imports about 70% of its annual fuel demand. This further pushed the price of other
commodities and the inflation reached to 16 year high level of 12.91%. This was
unsustainable level of inflation and ultimately it started coming down and entered into
negative territory for the first time in more than 30 years. The graph below shows the trend
in Inflation from January 2008.
Source: Department of Economic Affairs

Industry Analysis
Overview of the Industry:
The oil and gas industry has been instrumental in fuelling the rapid growth of the Indian
economy. The petroleum and natural gas sector which includes transportation, refining and
marketing of petroleum products and gas constitutes over 15 per cent of the GDP. Petroleum
exports have also emerged as the single largest foreign exchange earner, accounting for
17.24 per cent of the total exports in 2007-08. Growth continued in 2008-09 with the export
of petroleum products touching US$ 23.63 billion during April-December 2008.
In November 2008, the Cabinet Committee on Economic Affairs awarded 44 oil and gas
exploration blocks under the seventh round of auction of the New Exploration Licensing
Policy (NELP-VII). The overall number of blocks brought under exploration now exceeds
200. The allocation is likely to bring in investments worth US$ 1.5 billion. The eighth round
of auction is going to be later this year.
Production
• Domestic production of crude oil fell from 34.11 MT in 2007-08 to from 33.50 MT
in 2008-09.
• Refinery production in terms of crude throughput increased to 160.77 MT in 2008-09
as compared to 156.10 MT in 2007-08.
• The production of natural gas went up to 32.84 billion cubic metres tonnes (BCM) in
2008-09, from 32.40 BCM in 2007-08.
• The projected production of crude oil during the 11th Five-Year Plan (2007-2012) is
206.76 MMT, while that of natural gas is 255.27 BCM.
Consumption: India's domestic demand for oil and gas is on the rise. As per the
Ministry of Petroleum, demand for oil and gas is likely to increase from 176.40 million
tonnes of oil equivalent (mm tone) in 2007-08 to 233.58 mm tone in 2011-12.
India is emerging as the global hub for oil refining with capital costs lower by 25 to 50 per
cent over other Asian countries. Already, the fifth largest country in the world in terms of
refining capacity, with a share of 3 per cent of the global capacity, India is likely to boost its
refining capacity by 45 per cent or 65.3 mtpa over the next five years, according to a
Deutsche Bank report. Indian companies plan to increase their refining capacity to 242 mtpa
by 2011-12 from about 149 mtpa in 2007.
Policy

• 100% FDI is allowed in petroleum refining, petroleum product and gas pipelines and
marketing/retail through the automatic route.
• For entry into petroleum product marketing/retail, an investment in an upstream

venture of over $450 million is required.
• Virtual administrative price control of government over most petroleum products.
• Petroleum and Natural Gas Regulatory Board Bill to be enacted shortly will result in
the setting up of an Independent Regulator for Oil & Gas.
• Natural Gas Pipeline Policy to be enacted shortly.
Outlook
• High GDP growth rate, rapidly growing vehicle population and better road
infrastructure will drive consumption of petroleum products.
• Industry is expected to grow at a CAGR of about 8% to 10% .
• Over 190 MMT of refining capacity required by 2010.
• Over 120MMSCMD of additional demand for Natural Gas in the next five years.
• Recent gas finds and increased use of gas for power generation, petrochemicals,
fertilisers and city gas distribution
Content Source: www.investmentcommission.in, ibef.org
Porter’s Five Forces Model

Threat of new entrants:
Due mostly to the industry that ONGC is in, it’s hard for there to be many new entrants. The
only real threat that might arise would be another government funded Oil and Gas company.
The reason for this is that a government would not have as hard a time raising funds and
gaining access to resources. This is assuming that the company would be researching and
developing on domestic soil.
The only other threat may not be from new entrants but from smaller competitors who
already have access to resources and distribution channels. There is really not much of a
threat because there are two main barriers to entry that would be stopping potential
threats. These would be very high capital requirements as well as access to

Cost disadvantages independent of scale. Even though this industry if very
attractive because of the high profits it would be very hard for a company to have enough
capital to get in the market. Every part of Oil and Gas Exploration and Development is costly
and not something that would be worth the costs as a new entrant into the industry. Going
along with the high cost of capital are the cost disadvantages. The companies already in the
industry already have the access to raw materials as well as desirable locations. This is
something that would be very difficult for a new entrant to try and gain.
Bargaining Power of Suppliers:
ONGC is a vertically integrated company that really deals in all areas from finding the
product to refining the product to selling the product. With this being said there is not much
to worry about the bargaining power of the suppliers. Supplier power is high as the net
margins are strongly dependent on the price of the crude. Due to crude price volatility and
supply risks, a lot of the Indian companies are integrating backwards into E&P activities.
Bargaining Power of Buyers:
Not too critical for most companies as refining operations are a part of the complete supply
chain, with the refining operations supplying the product to the marketing company.
However in case of standalone companies (which may no longer apply) long term contracts
have to be signed with the marketing companies. The margins in such cases are dependent on
such long term contracts. The industry that ONGC is a part of is different than many other
industries. It is different in the fact that people really cannot go without their product. While
over a long period of time it may be possible to find other fuels it is not really feasible in the
short term. This has been seen in the US in the last few years. Gas companies can keep the
prices high and consumers will still pay the high prices. When looking at the individual
buyer they have almost no bargaining power because they are only buying such an extremely
small portion of the industries total output. Another reason for this lack of bargaining power
is that as of right now there is not a real alternative to Oil. All of these reasons make it very
hard for the buyer to have much bargaining power at all.
Threat of Substitutable Products:
Although gas, solar power etc exist as substitutes, none of them are big enough to impact the
demand of the petroleum products. As stated above there is not a real alternative to oil at this
time. There is research being done to try and find substitutes. With the price of oil as high as

it is at this time, it is only giving more reason to try and find other fuel sources. This is where
the main players in this market must be careful. The prices are staying fairly high now
because people really don’t have a choice and must pay. If other fuel sources do come out
that are less costly, many people will go towards those alternatives. It does not seem that at
this time there is a huge threat of this happening but it is definitely a possibility that any
player in the market must be aware of.
Intensity of Rivalry among Competitors:
The rivalry in the industry was low till as the industry was tightly regulated by the
government. However, the level competition has increased with Reliance and other MNC
becoming more aggressive. The largest competitors in this industry for ONGC are Exxon
Mobile and Royal Dutch Shell. ONGC is currently in 14 different companies whereas Exxon
Mobile is in 20 different countries. While Exxon may be a larger company now ONGC is
growing and is becoming a very important global player.

SWOT Analysis of ONGC
Strengths:
• State-owned: One of the biggest advantages & strength of the company is that it is
state owned. This led the company have great infrastructure with the governments
support. The policy making also becomes easier due to the same reason. Moreover
any undue and sustained pressure creates due impact on the government as well.
• Efficient and Professional management Team: The management team of ONGC

comprises of some eminent figures of the industry who has got wealth lot of
experience in running the Business and some of them has been successful
entrepreneur as well. These people are at the helm of any decision making regarding
the policy of the company.
• Growing Demographics: The Company has a strong presence in 18 countries

through its ONGC Videsh Ltd. (OVL) and is a major global player in oil exploration
industry. This gives the company an added advantage over the other domestic players
who are mainly confined to the domestic market. Through a large base of operation,
the company is able to produce oil & gas at lowest cost. Having an international
presence also increases company’s credibility and provides sufficient resources and
capital to invest in other projects.
• Good Quality of Product: All crudes are sweet and most (76%) are light, with
sulphur percentage ranging from 0.02-0.10, API gravity range 26°-46° and hence
attract a premium in the market.
• Maximum number of Exploration Licenses, including competitive NELP

rounds: ONGC has bagged 85 of the 162 Blocks (more than 50%) awarded in the 6
rounds of bidding, under the New Exploration Licensing Policy (NELP) of the Indian
Government. This enables the company to stay ahead of its competitors.
• Strong Infrastructure: ONGC owns and operates more than 15000 kilometers of
pipelines in India, including nearly 3800 kilometers of sub-sea pipelines. No other
company in India operates even 50 per cent of this route length.
Weaknesses:

• State-owned: The control of state sometimes proves to be a weakness for company
as well. Because of Huge govt. of India control on ONGC many important decisions
are being taken by govt. of India and sometime it proved to be fatal for company’s
profit and growth prospects. For example, the government’s decision to provide
certain amount of money to the huge loss making petroleum companies from ONGC
has an adverse impact on the net profit of the company.
• Low Production from aging Reservoirs: ONGC is facing difficulties to produce oil
from aging reservoirs.
Opportunities:
• Expansion of offshore operations: The oil reserves in some African countries are
still unexplored and ONGC has a great opportunity to tap these markets to meet
growing needs petroleum in India. This will definitely add to the production capacity
of the company in a long way.
• Increased Economic Activity: The economy all over the world is showing signs of
recovery and because of that the crude oil prices will appreciate in the coming
months. This will help the company to gain the lost ground due to huge decrease in
the crude oil price last year.
Threats:
• Ever Changing Government Policy: The policy of the government keeps changing
over the period of time and any unfavourable change from the company’s perspective
may be damaging for the company. For example, if the government decides to
subsidise the diesel further, this will put an extra pressure to the profit of the
company.
• China’s Growing Demand: The Chinese company are directly competing with
ONGC in several parts of the world. The aggressive bidding policy adopted by the
Chinese companies might result in either huge escalation in the cost or the company
might even loose the bid altogether. So this is going to be a great concern for the
company as far as securing the energy needs of the country is concerned.
• Rapid Change in Technology: The Company could fall behind technology with
everything changing so quickly this day and age. The company is required to do a lot
of investment in this area.

• Threat of Alternative Fuel: The Company may face some real threat from
alternative fuels in the next decade or so. But this is not going to be realised in the
near future and the replacement of oil & natural gas.
• Change in Policy by Foreign Governments: The foreign policy of different

governments keep changing over the period of time and this does have a significant
impact on the bidding policy or the tender invited by the government in that
particular country. Therefore, an unfavourable policy change vis-a-vis Indian
government might adversely impact the future prospects of the company.
BCG Matrix Analysis for ONGC:
The BCG Matrix method is the most well-known portfolio management tool. It is based on
product life cycle theory. It was developed in the early 70s by the Boston Consulting Group.
The Boston Consulting Group Matrix has 2 dimensions: market share and market
growth. The basic idea behind it is: if a product/company has a bigger market share, or if
the product's/company’s market grows faster, it is better for the company.
Oil and Natural Gas Corporation (ONGC) falls under the category of Star. The Oil
exploration industry has been one of the key drivers of growth for the entire economy as they
provide major chunk of the revenue to the exchequer of India. There are many reasons
behind positioning the company in the category of star. These can be grouped in the
following manner:

• Relative Position (Market Share): ONGC is the no.1 company in India as far as oil
exploration is concerned. It contributes 77% of India's crude oil production and 81%
of India's natural gas production. It is the highest profit making corporation in India
far ahead than its nearest competitor Reliance Industries Ltd. ONGC has bagged 85
of the 162 Blocks (more than 50%) awarded in the 6 rounds of bidding, under the
New Exploration Licensing Policy (NELP) of the Indian Government. Compare this
to RIL, which has got only 33 blocks. Clearly, the company has got an upper hand
here and recently, the company also jointly found oil reserves in Barmer, Rajasthan
which is further going to strengthen the market share of the company. Talking about
the overseas business, ONGC’s wholly-owned subsidiary ONGC Videsh Ltd. (OVL)
is the biggest Indian multinational, with 44 Oil & Gas projects (7 of them producing)
in 18 countries. OVL has a committed overseas investment of over 5 billion US
dollars whereas for RIL, the international business comprises 11 blocks with acreage
of about 80,000 square kilometers - 3 in Yemen (1 producing and 2 exploratory), 2
each in Oman, Kurdistan and Colombia, 1 each in East Timor and Australia. Hence,
ONGC is comfortably placed at the top in the industry though it is expected to get
tough competition from Reliance with the KG D-6 discovery. But the leadership
position is not under threat in at least 10 years considering the amount of investment
the company is doing in this field in international as well as in the domestic market.
• Business Growth rate: Despite the fact that the world economy was in doldrums
for more than a year and continues to be sluggish, ONGC achieved sales revenue of
Rs. 639,439 million, a 6% increase compared to the previous year. The net profit
however slowed down by 3% but mainly on account of sharing huge burden of under
recoveries of the Oil Marketing Companies (OMCs), to the extent of Rs. 282,252
million. Comparing these figures with RIL, the turnover for the company did
increase greater than ONGC to 8.3% but the net profit dipped by a considerable
21.5%. Clearly, ONGC is ahead in terms of the profitability too. And if we add the
amount given to OMCs like HPCL, IOC and others the profit will be in positive
zone.
Hence, ONGC’s position as the star is justified. Also, the kind of growth in demand in Oil
and Gas expected in the coming months as the global economy is pressing hard for recovery
will further benefit the company. The amount of investment being done in the exploration
business is going to fructify in coming years and that will put the company and the industry
as a whole on quite a firm footing.

Industry Life Cycle
A concept relating to the different stages an industry will go through, from the first product
entry to its eventual decline. There are typically five stages in the industry lifecycle. They are
defined as:
• Early Stages Phase - alternative product design and positioning, establishing the
range and boundaries of the industry itself.
• Innovation Phase - Product innovation declines, process innovation begins and a
"dominant design" will arrive.
• Cost or Shakeout Phase - Companies settle on the "dominant design"; economies of
scale are achieved, forcing smaller players to be acquired or exit altogether. Barriers
to entry become very high, as large-scale consolidation occurs.
• Maturity - Growth is no longer the main focus, market share and cash flow become
the primary goals of the companies left in the space.
• Decline - Revenues declining; the industry as a whole may be supplanted by a new
one.
(Source: Investopedia)
The Oil & Gas Exploration Industry is clearly into the third stage of Industry Life Cycle as
there is hardly any space for smaller player in the global market. The industry is not going to
enter into the stage of maturity any soon as there are many huge oil reserves still left
unexplored in the African region on which many big players are keeping a constant eye.
Even in India, there is a lot of scope for further investment in this industry. The CAGR of
5% in sales by ONGC shows that there is still a lot of scope left in the industry. Moreover,
the return on Capital Employed was 49.9% for the FY 2008 for ONGC which is again quite
commendable.
Overall, the industry is going to be a crucial driver for growth for the country and the future
prospects are quite bright. However, the government needs to take some concrete steps in
order to revive the OMCs as they are suffering from huge losses and the proposed
deregulation of price of Petrol and Diesel by the government is a step in the right direction.
Industry Index Analysis:

Source: moneycontrol.com
The above graph shows the performance of several indices on BSE for the last five years.
Clearly, the oil & gas sector has been one of the star performers among the different indices
giving returns of 264.94% just behind the capital goods sector which outperformed the other
sectors by a huge margin and gave a return more than 400%. No other sector in the market
has given a return of more than 200% apart from Bankex. This shows that the sector is very
good for those investors who are interested in investing in the market for the long term.
The sensex on the other hand gave a return of 200.65% over the period of 5 years. The sector
therefore outperformed the sensex in the long run. Hence, it is suitable for those kinds of
investors who are willing to invest in the market for a long period of time.
Company Analysis
A Brief Overview of the Company:
Oil and Natural Gas Corporation Limited (ONGC) (incorporated on June 23, 1993) is India’s
most valuable public sector (petroleum) company. It is also one of the Navratna Company in
India. It is a Fortune Global 500 company ranked 335th, and contributes 77% of India's
crude oil production and 81% of India's natural gas production. It is the highest profit making
corporation in India. It was set up as a commission on August 14, 1956. Indian government
holds 74.14% equity stake in this company. ONGC is one of Asia's largest and most active

companies involved in exploration and production of oil. It is involved in exploring for and
exploiting hydrocarbons in 26 sedimentary basins of India. It produces about 30% of India's
crude oil requirement.
Post 1990, the liberalized economic policy was brought into effect; subsequently partial
disinvestments of government equity in Public Sector Undertakings were sought. As a result,
ONGC was re-organized as a limited company and after conversion of business of the
erstwhile Oil & Natural Gas Commission to that of Oil and Natural Gas Corporation Ltd in
1993, 2 percent of shares through competitive bidding were disinvested. Further expansion
of equity was done by 2 percent share offering to ONGC employees. Another big leap was
taken in March 1999, when ONGC, Indian Oil Corporation (IOC) and Gas Authority of India
Ltd. (GAIL) agreed to have cross holding in each other’s stock. Consequently the
Government sold off 10 per cent of its share holding in ONGC to IOC and 2.5 per cent to
GAIL. With this, the Government holding in ONGC came down to 84.11 per cent. In 2002-
03 ONGC took over Mangalore Refinery and Petrochemicals Limited (MRPL) from Birla
Group and announced its entrance into retailing business. ONGC also went to global fields
through its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made major investments in
Vietnam, Sakhalin and Sudan and earned its first hydrocarbon revenue from its investment in
Vietnam.
In 2009, ONGC discovered a massive oil field, with up to 1 billion barrel reserves of heavy
crude, in the Persian Gulf off the coast of Iran. Additionally, ONGC also signed a deal with
Iran to invest US$3 billion to extract 1.1 billion cubic feet of natural gas from the Farzad B
gas field.
Financial Highlights (2008-09):
• ONGC posted a net profit of Rs. 161.26 billion despite volatile oil markets and crude
prices.
• Net worth Rs. 781 billion.
• Practically Zero Debt Corporate
• Contributed over Rs. 280 billion to the exchequer
Representing India’s Energy Security:
ONGC has single-handedly scripted India’s hydrocarbon saga by:

• Establishing 6.61 billion tonnes of In-place hydrocarbon reserves with more than 300
discoveries of oil and gas; in fact, 6 out of the 7 producing basins have been
discovered by ONGC: out of these In-place hydrocarbons in domestic acreages,
Ultimate Reserves are 2.36 Billion Metric tonnes (BMT) of Oil plus Oil Equivalent
Gas (O+OEG).
• Cumulatively producing 788.273 Million Metric Tonnes (MMT) of crude and 463
Billion Cubic Meters (BCM) of Natural Gas, from 111 fields.
• ONGC has bagged 85 of the 162 Blocks (more than 50%) awarded in the 6 rounds of
bidding, under the New Exploration Licensing Policy (NELP) of the Indian
Government.
• ONGC’s wholly-owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest Indian
multinational, with 44 Oil & Gas projects (7 of them producing) in 18 countries, i.e.
Vietnam, Sudan, Russia, Iraq, Iran, Myanmar, Libya, Cuba, Colombia, Nigeria,
Nigeria Sao Tome JDZ, Egypt, Brazil, Congo, Turkmenistan, Syria, Venezuela and
United Kingdom. OVL has a committed overseas investment of over 5 billion US
dollars.
Global Ranking:
• ONGC ranks as the Numero Uno Oil & Gas Exploration & Production (E&P)
Company in the world, as per Platts 250 Global Energy Companies List for the year
2008 based on assets, revenues, profits and return on invested capital (ROIC).
• ONGC is the only Company from India in the Fortune Magazine’s list of the World’s
Most Admired Companies 2007.
• Occupies 152nd rank in “Forbes Global 2000” 2009 list (up 46 notches than last year)
of the elite companies across the world; based on sales, profits, assets and market
valuation during the last fiscal. In terms of profits, ONGC maintains its top rank from
India.

Ratio Analysis:
Earnings per Share (EPS):
EPS means the portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's
profitability. It is calculated by the formula:
EPS = (NI – Dividend on Preferred Stocks) / Average outstanding Shares
P/E Ratio:
P/E ratio is a valuation ratio of a company's current share price compared to its per-share
earnings. It is calculated as:
P/E ratio = Market price per share / EPS
In general, a high P/E suggests that investors are expecting higher earnings growth in the
future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the
whole story by itself. It's usually more useful to compare the P/E ratios of one company to
other companies in the same industry.
The following graph shows the EPS and P/E Ratio of ONGC for the last 5 years.
The EPS for the company fell by 3.71% mainly on account of the fall in PAT by 3%. The
PAT for the company fell from Rs. 167,016 million to Rs. 161,263 and this dragged down
the EPS but still it is substantially higher than every other company of this sector apart from
RIL which has an EPS of Rs. 97.07. This shows that the company is way ahead from its
competitors in providing earning per share. Talking of P/E Ratio, it also fell in the current
Financial Year (Market Price has been taken on 31st March of each FY), but that was largely
because of the sharp decline in the share price of the scrip but as the price of scrip moved up
in the recent months the P/E ratio is expected to see sharp moment upwards. Now, it is more
than 15. Still, in this level the P/E ratio is at par with RIL and GAIL which have a P/E Ratio
of more than 21.38 and 16.22 respectively in the first week of September, 2009. Hence, P/E
Ratio is going to improve in the coming months.
Operating Profit Margin:

A ratio of profitability calculated as net income divided by revenues, or net profits divided
by sales. It measures how much out of every dollar of sales a company
actually keeps in earnings. Profit margin is very useful when comparing companies
in similar industries. A higher profit margin indicates a more profitable company that has
better control over its costs compared to its competitors.
Return on Capital Employed:
ROCE indicates the efficiency and profitability of a company's capital investments. It i

calculated as: ROCE = EBIT / (Total Assets – Current Liabilities)
ROCE should always be higher than the rate at which the company borrows; otherwise any
increase in borrowing will reduce shareholders' earnings.
Book Value per Share:
It is a financial measure that represents a per share assessment of the minimum value of a
company's equity. Book value per share is one factor that investors can use to determine
whether a stock is undervalued or overvalued. BVPS provides a snap shot of a firm's current
situation, but considerations of the firm's future are not included.
It is calculated as: BVPS = Value of Common Equity / No. of shares outstanding
The graphical depiction of the above three ratios are given below:
The OPM has come down over the years because of the competitive nature of the industry as
well as the burden of OMCs on the company. Besides that, the company has an OPM much
greater than its nearest rivals RIL and GAIL which have OPM of 14.45% and 11.40% for
this year. The ROCE for the company is decreasing though but it is still better than any other
player in this sector providing the shareholder a true worth for their investment.
Finally, the BVPS is proving for the past two years and this clearly shows that the value of
common equity is enhancing and it is far better than the BVPS for RIL of 12.96 for FY 08.
So the company’s share price might see an appreciation in the long run.

Non Financial Analysis
Chairman’s Profile:
R S Sharma is Chairman & Managing Director of ONGC. Being on the Board of ONGC
since 1st March 2002 and holding the additional charge of CMD of ONGC since May 2006,
R S Sharma has been credited to have brought in numerous business improvements in
ONGC; leveraging strengths to build up its fortunes over the last few years.
In these five years, he played an important role in providing value dimensions to ONGC’s
business, which grew from less than 6 billion US dollars to around 20 billion US dollars.
He was also on the Board of ONGC Videsh Ltd. (OVL), India’s biggest multinational,
before taking over as Director (F) on the Board of parent ONGC. Sharma played a pivotal
role in financial engineering of ONGC’s other subsidiary MRPL also, which was sick when
ONGC acquired it.
The topping of the cake, however, is Sharma’s thrust on augmenting capex investment, for
growth. In 2006-07, ONGC board cleared investment proposals worth over Rs 34,000 crores.
Mr. R S Sharma is a Fellow Member of the Institute of Cost & Works Accountants of India,
and an Associate Member of the Indian Institute of Bankers. His run-up to this career peak
commenced 35 years ago in 1972 with the Union Bank of India. After serving there in Credit
Appraisal and related spheres for a decade, the banker relocated to Baghdad, to head the
Finance function of another public enterprise, The Indian Road Construction Company.
The next six years in the construction company (four years in the Middle East) saw him pilot
many important projects single-handedly, before he joined ONGC in July 1988 as Joint
Director (Finance), posted at Assam.
Under his stewardship, ONGC was assigned Baa1 Credit Rating, the highest-ever Credit
Rating assigned by Moody’s to any Indian Corporate.
Several awards have come his way, in recognition to his individual contributions, one of the
latest being in November 2006, viz. CNBC TV-18 CFO Award 2006 for excellence in Oil
and Allied services category, India’s most recognized award for excellence in the financial
field.
He was also conferred with India CFO Award 2005, Excellence in Finance in PSU in
December 2005, by International Market Assessment (IMA), in association with BNP
Paribas, Sun Micro Systems and CNBC TV-18.

Future Projects
The Oil & Gas industry is quite dynamic in nature. It needs constant investment to stay ahead
in this industry. The following are some details of future projects of ONG:
1. ONGC is planning to jointly invest 4 billion(Rs 20,000 crore) to scale up the

production capacity of their oil fields at Barmer in Rajasthan by 25,000 barrels of oil
per day (bopd) to two lakh bopd. They had earlier revised their production target
from 1.50 lakh bopd to 1.75 lakh bopd. The commercial production at the Mangla
filed in the Barmer basin began in August 2009 with an initial capacity of 30,000
bopd. The production will be increased by a further 100,000 barrels per day in the
first half of next year. This is quite a significant development as oil from Rajasthan
will account for over 20% of India’s domestic oil production. ONGC holds 30%
participating interest in this project.
2. Oil and Natural Gas Corporation (ONGC) will invest Rs 8,554 crore in producing
crude oil from two clusters of marginal fields in the western offshore by 2012. The
board of the state-run firm approved the development of the B-22 cluster and the B-
193 cluster at an estimated cost of Rs 8,554.26 crore with foreign exchange
component of $1.697 billion on 28 August 2009, a company release said. The idea of
combining two projects by way of offloading the process requirement and related
facilities, erstwhile considered to be taken up separately, would amount to a savings
of about $133 million. The investment would help produce 10 million tonne of oil
and 11.5 billion cubic metres of gas over a 15-year period. While the gas production
will commence by 2011, oil production is to begin by 2012. The board also approved
procurement of second generation stimulation Vessel equipped with state-of-the-art
technology for the Mumbai offshore at an estimated cost of Rs 764.1 crore. The new
stimulation Bessel will increase the productivity of oil and gas wells by removing the
drilling induced damage, increasing the effective well bore radius and changing the
flow regime into the well bore. At present, well stimulation jobs are done by Samudra
Nidhi, the only stimulation Bessel owned by ONGC. The new vessel will not only
augment the stimulation job but will gradually replace Samudra Nidhi.
3. According to a press release dated July 23, 2009 ONGC Board approved setting up of
Polypropylene Unit by MRPL integrated with its Phase-3 refinery project at a total
project cost of Rs 1803.78 Crore to be executed in 39 months (38 months for

mechanical completion and 1 month for commissioning). The capacity of the plant is
440,000 TPA of Polymer grade Propylene product.

Comparative Analysis
ONGC v/s RIL:
Source: Yahoo Finance

The above figure gives a comparative performance of RIL and ONGC for the last five years.
Clearly, despite the strong fundamentals ONGC has not been able to outperform RIL in
terms of providing the shareholders a better return on their investment. This is mainly
because RIL is more responsive towards the sensex and during the period of July 2006 to
December 2008, ONGC could not march with the market and hence was outperformed by
RIL.

However, the scrip did perform better than PSUs in the same sector viz. GAIL, HPCL, IOC
over the last five years. This shows that in order to diversify the portfolio, one should go for
ONGC rather than its PSU counterparts as the return are higher in this scrip with almost
same level of risk.

Technical Analysis
Application of Dow Theory:
Dow Theory was formulated from a series of Wall Street Journal editorials authored by
Charles H. Dow from 1900 until the time of his death in 1902. These editorials reflected
Dow’s beliefs on how the stock market behaved and how the market could be used to
measure the health of the business environment. Dow believed that the stock market as a
whole was a reliable measure of overall business conditions within the economy and that by
analyzing the overall market; one could accurately gauge those conditions and identify the
direction of major market trends and the likely direction of individual stocks.
There are six basic tenets of Dow Theory. These are:
1. The stock market discounts all news

2. The market has three movements
3. Market Trends have three phases
4. Trends are confirmed by volume
5. Stock market averages must confirm each other
6. Trends exist until definitive signals prove that they have ended
Trend Analysis of the scrip: ONGC
The Red lines indicate the Bearish Trend while the Green lines symbolize the Bull trend
in the scrip.
The share was listed on BSE in March 2004 on and after that the scrip saw a continuous
Bullish trend; however during this time it also saw Secondary Trend that resulted in some
serious correction in the price of the scrip. The first Bull trend that started after the listing of
the scrip lasted till 10th May, 2006. But the scrip also witnessed some secondary movement
during its northward march which is shown in the graph. The major secondary trend during
this upward march were the correction during the month of July 2005 when the scrip shed
more than 54% of what it had gained in the past three months from mid April to June 2006.
The second major correction trend was during the period of 25.01.2006 to 01.03.2006 when
the scrip witnessed selling pressure and it lost 45.3% of the total gain since August 2005.
The volumes started declining again but after that the scrip continued its march in the upward
direction.

After the long Bull Run on the sensex the scrip finally gave up its upward march and the bear
took the control of the scrip that lasted till 16 th March, 2007 because of which the scrip saw
its value declining from Rs. 1484 to Rs. 762.2 that means a decline of more than 48% which
was almost equal to the level seen in January 2005. The primary Bear trend was confirmed
by the huge decline in volume seen in the recent months. However, the secondary trend
started from 08th June, 2006 lasted for almost 2 months and the scrip gained almost 50% and
crossed Rs. 1200 mark again but the volumes were still on the lower side and finally the
scrip gave up its upward motion and the bear took control of the scrip. Finally, the dust
settled on 16th March, 2007 and the upward trend started from the next week of March, 2007.
The next Uptrend in the scrip lasted for almost 9 months and the scrip saw its value
appreciated from the bottom of Rs. 762.2 to Rs. 1366.1, an increase of almost 80% from the
level seen in March 2007. However, the scrip was traded in the range of Rs. 960 – Rs. 860
for the three months duration from 25th April to 25th July, 2007 and after that it saw a very
small period of correction and the scrip shed 162 points and reached below Rs. 800 mark on
20th August, 2007 but the correction period was very short and the scrip picked its motion
again and continued its upward motion till it breached Rs. 1300 mark on 1st November, 2007
after a span of almost 14 months. But the scrip couldn’t sustain that level of valuation and
the correction started in the price of the share.
The next Bear Trend unleashed at the start of November, 2007 when the devil named
recession was about to enter into the market. The Bear trend lasted for almost one full year
from 3rd November, 2007 to 27th October, 2008 during which the scrip lost more than 700
points to reach below Rs. 600 mark, a correction of more than 54%. During this phase the
scrip saw two major secondary trends, first in the month of December itself when the scrip
covered much of the lost ground and touched Rs. 1300 mark again but the recession hit the
Indian market in January 2008 and the scrip could remain unaffected from the impact of the
recession. Its value declined to below Rs. 800 mark and then the scrip witnessed another
secondary trend from mid June 2008 to the end of September, 2008 when it touched s. 1000
mark again. Finally, the selling pressure ensured that the scrip reached to its bottom of Rs.
620.95.
At this time the market was quite volatile as everybody was uncertain about the severity of
the recession on the Indian Economy. In the next three and a half months the scrip remained
volatile and being traded between Rs. 650 and Rs. 720 with the former figure being the
support level while the latter being the resistance level. Finally, due to some positive global
as well domestic cues, the market activities picked up and so did the scrip. The scrip crossed
its resistance level on 18th march, 2009 and started its upward march till it crossed Rs. 1175
mark on 29th May, 2009. After that the scrip looked exhausted and shed almost 1200 points

before picking its upward motion again form 23rd June, 2009. It reached its 52 week high
figure of Rs. 1191.4 on 21st August, 2009.
In recent times, the scrip is again looking exhausted and there are
some definite signs of decline in the value of the scrip but this is
definitely going to be a secondary trend as the stock market is poised
for an upward trend. Also, the scrip has shown a primary uptrend for a
period of at least 12 months once the volumes started accelerating.
This pattern is becoming visible here and the scrip after reaching to
the level of Rs. 630 is on a upper growth trajectory which is going to
sustain over the long run.
Application of Elliott Wave Theory:
5
4
3
1
2
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Operation of Elliot Wave
R. N. Elliott believed markets had well-defined waves that could be used to predict market
direction. In 1939, Elliott detailed the Elliott Wave Theory, which states that stock prices are
governed by cycles founded upon the Fibonacci series (1-2-3-5-8-13-21…).

According to the Elliott Wave Theory, stock prices tend to move in a predetermined
number of waves consistent with the Fibonacci series. Specifically, Elliott believed the
market moved in five distinct waves on the upside and three distinct on the downside.
The scrip didn’t show the Elliot wave pattern over this period of five years so prominently
and the scrip has got its own pattern of movement. Therefore, it can be said that Elliot wave
theory doesn’t have a major say in predicting the future pattern of the scrip. Moreover, the
scrip has got a unilateral type of movement on either side upward or downward.
Comparison of BSE Sensex with Share Prices of ONGC
Analysis:
The scrip has a Beta value of 0.77 and the total Weightage in the Sensex is 4.8% (as on
31/03/09; Source: Bseindia.com). The Beta value affirms the positive correlation between
the scrip and the Sensex but it is not highly correlated with the market and has a tendency
to underperform than the market on upward movement while it outperform the market if the
sentiment in the market is gloomy. It is quite evident from the graph shown above. Till
January 2006, the scrip has performed at par with the sensex and the rise/fall in value of
either of the two is the same. However, from 2006 onwards this pattern somehow started
disappearing and the scrip has shown sharper movement than the sensex on the downside
while the movement on the upper side has been sluggish as compared to the sensex. While
the market showed a steady upward movement from July 2006 and there was a primary Bull

Trend in the market, the scrip couldn’t catch up the market till September 2008 and remained
volatile during this period without showing much movement on either side. (This is depicted
in the graph below). However, the scrip has shown good response to the movement of the
market in the recent times. This might be an encouraging signs for the investors who are
thinking of taking a long position on this share as the market is expected to go up backed by
the revive in the Indian Economy and the positive Global cues that is coming in recent times.
However, for the past two weeks, the sensex is looking exhausted and so does the scrip as the
volume is falling. This might be an indicator of further correction in the market and the scrip
will move accordingly though the quantum of movement of in the scrip will be slightly
greater than the movement in the sensex.
Analysis of Chart Patterns
The above graph shows the working of different chart patterns on the scrip for the last five
years.
The two chart patterns that are shown here are very prominent reversal patterns for the stock
market. The first pattern that is, Head and Shoulder Pattern appeared after a long Bull trend
in the scrip since it was listed on the stock exchange. Just before the development of this
pattern the volumes were drying up and then as the volumes started picking up, the first
shoulder was formed. The formation of left shoulder started on December 5, 2005 and it
ended on February 13, 2006. Then a fresh spurt in the volume level drove the prices again
and the Head was formed and the period of formation was from February 14, 2006 to June
12, 2006 that means a period of 6 months. Then the pattern finally becoming evident as the
volumes were relatively lower in the right shoulder and the bear trend was looking certain in
the scrip.
The next pattern that is quite visible in the graph is double top pattern that was developed
during October 15, 2007 to January 14, 2008 just before the stock market crash. This was the
time when the market was touching a new high. This resulted in the formation of a bubble
that couldn’t sustain and finally burst and that resulted in a bearish trend for more than a
year.
In the right most part of the a pattern is indicated which is taking the shape of Head and
Shoulder and might just well be another sign of reversal. But as discussed earlier it takes a

considerable amount of time for the completion of this pattern and therefore, a close watch is
the need of the hour.
Use of Technical Indicators

Bollinger Band Analysis:
Bollinger Bands are curves drawn in and around the price structure that define high and low
on a relative basis. The base of the bands is a simple moving average. A measure of
volatility, standard deviation, is used to set the width of the bands making them fully
adaptive to changing market conditions. The defaults are bands spread above and below a
20-day simple moving average by two standard deviations. The purpose of Bollinger
Bands is to provide a relative definition of high and low. By definition, prices are high
at the upper band and low at the lower band. This definition can aid in rigorous pattern
recognition and is useful in comparing price action to the action of indicators to arrive at
systematic trading decisions.
The following graph shows the share price movement of ONGC from Sep. 6, 2004 to August
31, 2009.

The scrip has shown a very interesting movement right from the beginning of the graph.
Whenever the scrip has touched the upper Band, it has shown downward movement and
whenever the scrip has touched the lower Band, it has shown upward movement in most of
the cases; though the duration of the movement has been varying over the period of time.
Also, there is one more thing to note in this graph is that the movement of the scrip (either
way) is quite sharp whenever it touches either of the two Bands when there is a wide gap
between the two bands and the movement is comparatively less sharp in the case of narrow
Gap between the two Bands. (See May 06, Oct 06, Aug 07, Oct 07, Aug 08, and May 09).
This is quite significant pattern and going by this historical evidence, it is looking quite
probable that the scrip is poised to show a downward correction in its price as the Bands are
closing at the rightmost end of the graph and the scrip has already touched the upper Band.
The downward movement might not be too much because the Gap between the two bands is
relatively narrower. But the scrip, most probably, is going to shed some points in the coming
days.
MACD Analysis:
Moving Average Convergence Divergence (MACD) is a trend-following momentum

indicator that shows the relationship between two moving averages of prices. The default
MACD is represented as the difference between a 26-day and 12-day EMA of the price. A 9-
day EMA of the MACD, referred to as the signal (or trigger) line, is plotted on top of the
MACD to indicate buy/sell opportunities. Divergence, the difference between the MACD
and the signal, is also plotted as a histogram. The MACD is most effective in wide-swinging
trading markets. In the given figure, the Red Line the Signal or Trigger Line while the Blue
Line indicates the MACD line in the lower panel of the Graph.

Going by the basic MACD trading rule, one can easily make out form this graph that the
indicator is giving the sell signal to the investor. The scrip has responded according to the
movement of Signal Line that means whenever the MACD falls below signal line, the
scrip has sown downward movement and vice-versa. This time too, the MACD line has
fallen below the Signal Line (see the rightmost part in the lower panel of the graph) and this
indicates a future downward correction in the price of the scrip.
Exponential Moving Average Analysis
An EMA differs slightly from a Simple Moving Average (SMA) in that it gives extra weight
to more recent price data. This allows investors to track and respond quickly to recent price
trends that might take more time to appear in an SMA. The formula for an EMA is:

EMA = price today * K + EMA yesterday * (1-K) where K = 2 / (N+1). Like an SMA, it
smooths out a data series, making it easier to spot trends.
In the above graph, the exponential moving average has been taken for 50 days i.e, 10 weeks
as it shows the behaviour of the scrip over the last 5 years more precisely than 200 days
moving average. The red line in the graph represents the EMA line. The scrip has shown
consistent movement around the EMA line and has catch up with the line within 3 months if
it has deviated too much on the either side. The catching up phase in upward movement is
supported by a significant rise in the volume while during the catch up phase in downward
movement the volumes has come down quite significantly. The recent trend is no exception
from the past trends. While the scrip is trying to catch the EMA line which is on the lower
side, the volumes are drying up for the scrip. (See the Histograms on the rightmost part of
lower panel of the graph). This clearly indicates the further downward movement in the scrip
in the coming trading sessions.

Relative Strength Index (RSI):
The Relative Strength Index (RSI) measures the price of a security against its past
performance in order to determine its internal strength (in an attempt to quantify the
security’s price momentum). When Wilder introduced the Relative Strength Index, he
recommended using a 14-day Relative Strength Index. Since then, the 9-day and 25-day
Relative Strength Indexes have also gained popularity. The Relative Strength Index is a
price-following oscillator that ranges between 0 and 100.
The scrip has got a history of trading in the range of 30 to 75 (RSI) for the last
five years and it has corrected itself each time the movement is beyond 75 or below 30. This
time too when the scrip crossed the upper boundary of 75 on RSI this May, it corrected its
upward movement and finally the movement is settled around 50 on RSI. The scrip crossed
60 a fortnight ago when it reached to a 52 week high figure and then there is a clear evident
of secondary movement in the price of the scrip. Therefore, the scrip will move up after a bit
of correction in the coming weeks.

Recommendations & Suggestions
The Indian stock market has recovered from the impact of recession and the confidence of
the investors and FIIs is restoring in the market again. The market has seen the bottom phase
the uptrend that started this March is expected to continue providing some key economic
factors like Monsoon, GDP growth rate, interest rates will not play a spoilsport.
Though the market is looking a bit exhausted for the past one week because of the volatility
it has shown in the past one week, it needs just one push from the global market to set the
Indian Stock Market on a high trajectory yet again. The positive Global cues that are
expected to come from various quarters will help the economy revive in a big way and the
market is going to react in the same enthusiastic manner.
Therefore, for the investors who missed the opportunity to invest in the market when it was
in the bottom in March, the coming weeks will set the tone for them. This is because of the
fact that right now the market is too volatile to invest and basically, market right now is not a
broad market where the either movement is supported by most of the scrips, instead it is a
market where one has to see a particular stock to trade and the investor can’t bet big on the
sensex as a whole.
The other thing that can be recommended here is that despite correlations (whether positive
or negative) the scrip has got a particular pattern of movement of its own which it follows
continuously therefore sometimes the trend in the market doesn’t necessarily reflect the trend
in that particular scrip.
Finally, ONGC is a kind of share which gives a decent return to the investors without putting
them into too much of a risk. The scrip doesn’t show any sudden upward or downward
movement and either movement use to be gradual in nature for this scrip, therefore, it can be
recommended to add to the portfolio to reduce the risk as the market price of the share will
appreciate in the coming times.

Conclusion
The scrip is definitely poised for a downward movement from this level and the correction is
definitely on the cards.
But the correction will not be too much and the scrip will be able to regain its position after
going through a short phase of correction. However, the investors who are willing to invest
in the scrip should wait till the next big movement in the scrip and then only they should go
for either Long or short position for the scrip.
A very interesting pattern is being seen in the stock market for the Last three months. While
in the previous three months, the FIIs have been net sellers in the equity market worth Rs.
85.14 crore, 1,364.60 crore and Rs. 3767.03 crore for the months of June, July and August
2009, the DIIs have been investing in the market in a big way. May be now is the time for
the DIIs to cash in on their earlier investment and this might lead to a great selling pressure
on the market and some of the index companies in which these people have a holding. The
DIIs have invested to the tune of about 13,000 crore in the past three months alone. This
might be the right time to exit for them as the valuation of the companies are touching new
highs after seeing those bottoms.
Current Price of the Scrip (as on 31.08.2009): Rs. 1,185.20
Recommended Action: Take a short position for the next two

weeks.
Target Price: Rs. 1,120
Stop Loss: Rs. 1,210
But the investor must invest at least for 9 – 10 months to get some
decent return out of this scrip. In the span of next 6 months, the scrip
might reach to the level of Rs. 1,300 but there is not much for the
investor left in this scrip as it has already touched its 52 week high point
and there is not much scope on the upside. So an investor should go for
an IT or an auto company where the prices are going to appreciate in a

big way as the encouraging news coming from different quarters for
these two sectors.

Bibliography
Books:
Investment Analysis and Portfolio Management: Prasanna
Chandra
Portfolio Management: S. Kevin
Financial Management: I M Pandey
Financial Management: Dr. M Y Khan
Annual Reports of ONGC
Websites:
• http://www.google.com
• http://www.ongcindia.com
• http://www.money.rediff.com
• http://www.finance.yahoo.com
• http://www.moneycontrol.com
• http://rbi.org.in
• http://nseindia.com
• http://bseindia.com
• http://www.imf.org/external/pubs/ft/weo/2009
• http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?
Symbol=RUB
• http://www.thehindubusinessline.com
• http://planningcommission.nic.in
• http://labour.nic.in
• http://indiabudget.nic.in
• http://scribd.com
• http://www.wikipedia.org

Annexure I

Annexure II

Annexure III
Table 1.3: Rate of growth at factor cost at 1999-2000 prices (per cent)

Table 1.4: Rate of growth at factor cost at 1999-2000 prices (per cent)
Abbreviations
MMSCMD: Metric Million Standard Cubic Meters Per Day

MMT: Metric Million Tone
BCM: Billion Cubic Metres
MTs: Metric Tonne
MTPA: Million Tonne Per Annum
PNGRB: Petroleum & Natural Gas Regulatory Board

FDI: Foreign Direct Investment
TPA: Tones Per Annum

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What is the report about?

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A

PROJECT REPORT ON ANALYSIS

Submitted in partial fulfillment of the

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His uncompromising demand for logical conclusions, quality of presentation, originality of

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Chapter 1. Executive Summary…………………………………………..………………..4

Chapter 3. Economic Analysis………………………………………………………….…6

Chapter 4. Industry Analysis……………………………………………………………...13

Chapter 5. Company Analysis…………………………………………………………......21

New Delhi Institute of Management Page 3

7.1 The DOW Theory……………………………………………..…...28

Chapter 8. Recommendations & Suggestions…………………………...............................37

Chapter 10. Bibliography………………………………………………….....................….39

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Introduction: OIL and GAS Sector

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Source: WEO July, 09: IMF

The Indian Economy:

Gross Domestic Product:

GDP is commonly used as an indicator of the economic health of a country, as well as to

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Monetary Policy Developments:

Source: 1st Quarter Review of Monetary Developments, RBI

Fiscal Policy Developments:

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Source: Union Budget 2009-10

Source: RBI Bulletin July 2009.

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Source: RBI Bulletin July 2009.

In economics, a recession is a general slowdown in economic activity over a sustained period

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Index of Industrial Production:

IIP Growth Rate (in %) April 08 – June

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Source: Department of Economic Affairs

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• For entry into petroleum product marketing/retail, an investment in an upstream

• Virtual administrative price control of government over most petroleum products.

• Natural Gas Pipeline Policy to be enacted shortly.

• Industry is expected to grow at a CAGR of about 8% to 10% .

• Over 190 MMT of refining capacity required by 2010.

Content Source: www.investmentcommission.in, ibef.org

Porter’s Five Forces Model

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Bargaining Power of Suppliers:

Bargaining Power of Buyers:

Threat of Substitutable Products:

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Intensity of Rivalry among Competitors:

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• Efficient and Professional management Team: The management team of ONGC

• Growing Demographics: The Company has a strong presence in 18 countries