Shares of oil major ONGC were flat on Thursday after global brokerage HSBC downgraded the company’s rating.

What Happened: HSBC has downgraded ONGC to “reduce” with a target price of ₹235, which represents a 20% downside from Wednesday’s closing price.

The brokerage has a bearish view on the oil sector amid falling prices, which it said threatens the viability of future projects. Earlier this month, the company was under pressure after prices of Brent crude fell below the critical $75 per barrel threshold.

HSBC identified several key concerns related to declining production rates and reduced guidance for the KG field, which it said is likely to impact the overall performance of the company.

Additionally, the brokerage also flagged the risk associated with unrelated capital expenditures and said that it is closely monitoring them. It anticipates the intensity of capital expenditures to increase, potentially complicating the firm’s financial landscape further.

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Weaker performance from subsidiaries may affect the company’s ability to pay dividends, it added. If these subsidiaries do not generate enough profit, it could limit the parent company’s financial resources, making it more challenging to distribute dividends to shareholders.

On Wednesday upstream oil majors like ONGC and Oil India showed little movement during early trade after the Indian government slashed windfall taxes on petroleum crude to zero.

Last week, ONGC’s shares dipped after Brent crude prices dropped to around $69 per barrel, the lowest since December 2021, following the Organization of the Petroleum Exporting Countries’ (OPEC) decision to lower its demand outlook for 2024 and 2025.

Back then, Nuvama Institutional Equities maintained a "reduce" rating for the stock with a price target of ₹232. The research firm expressed a cautious outlook on ONGC, highlighting concerns over missed production targets and the decline in oil prices.

Price Action: ONGC’s shares were trading 0.69% lower at ₹288.40 on Thursday morning.

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