Shares of Oil and Natural Gas Corp. Ltd (ONGC) have fallen below ₹100 for the first time in 15 years and are trading at ₹99.30 on the National Stock Exchange.

Now, here’s a stock which offers a dividend yield of 7.5% and enjoys an earnings yield of more than 20%. Its market capitalization of ₹1.25 trillion is lower than three years of operating cash flow.

What explains this dramatic fall in confidence for shares of the state-run oil and gas producer?

True, December quarter earnings announced on Friday are disappointing. But investors have been agonizing about divestment of the government’s stake in the company. In the past two years, the government’s shareholding in ONGC has reduced to 62.78% in Q3 FY20 from 67.72% in Q3 FY18.

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“A potential stake sale by the government to meet its FY21 disinvestment target of ₹210,000 crore is a key overhang," wrote SBICAP Securities Ltd analysts in a report on 14 February.

As such, a possibility of further dilution cannot be ruled out.

At the same time, if the government pivots to strategic disinvestment like it is planning with Bharat Petroleum Corp. Ltd, then some analysts hope that supply of ONGC shares through fresh ETF (exchange traded fund) issuances will be lower than in the past few years. But, of course, these events will unfold over the coming months and right now, investors have to deal with the uncertainty.

Further, analysts estimate domestic gas prices to fall sharply in the six months ended 30 September 2020 compared to the previous six months, in keeping with lower benchmark prices. Sure, gas price reforms, if and when they happen, will be helpful.

In general, triggers for the ONGC stock are few and far between. A sustained weakness in production has been a concern. For the nine months ended 31 December, crude oil output fell 4.3% year-on-year whereas gas production fell 2%. “The confidence on production improvement is low," said an analyst seeking anonymity.

Further, oil price outlook remains muted from a near-to-medium term perspective.

For Q3, stand-alone net profit halved to ₹4,151 crore from a year ago, coming in below Street estimates. Lower crude oil and gas sales volume, lower-than-expected other income, and high depreciation costs are the main culprits. Not surprisingly, analysts have cut their earnings estimates after the results.

But, while ONGC’s performance is subdued, valuations of only about five times earnings show that investors’ worries go beyond performance. The government will do well to instil confidence in investors about public sector stocks in general, especially given its plan to raise ₹2.1 trillion through disinvestments in FY21.

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