With the Union Budget 2026-27 just weeks away and Brent crude hovering near $60 per barrel, JM Financial is urging investors to pick their oil and gas bets carefully. The brokerage has issued contrasting recommendations across the sector, backing upstream producers while warning of fiscal risks for downstream companies.

Upstream Producers Offer Medium-Term Value

JM Financial has reiterated buy ratings on both Oil India and ONGC, citing attractive valuations that already factor in weaker near-term crude realizations. The brokerage sees significant value in upstream stocks at current price levels.

For Oil India, JM Financial expects a compelling growth story driven by 20-25% cumulative oil and gas production growth and the expansion of the Numaligarh refinery from 3mmtpa to 9mmtpa. The brokerage describes it as a "15% earnings-compounding story over the next 2-3 years." ONGC is also expected to benefit from medium-term production growth, despite lower near-term Brent assumptions of $65 per barrel for FY26 and FY27.

Excise Duty Risk Looms for Marketing Companies

While subdued crude prices continue to support near-term marketing margins for oil marketing companies (OMCs), JM Financial cautions that the government could use the upcoming Budget to claw back revenue gains through higher excise duties on petrol and diesel.

The brokerage's analysis reveals significant scope for excise duty increases:

Mixed Outlook for Individual OMCs

JM Financial maintains cautious stances on the three major oil marketing companies, citing valuation concerns and policy risks:

HPCL faces particular challenges with its ₹730 billion Rajasthan refinery project, which may deliver only single-digit returns due to time and cost overruns. Despite strong near-term earnings prospects, IOCL and BPCL face stretched valuations and aggressive capital expenditure plans.

Near-Term Earnings Remain Robust

For the third quarter of FY26, JM Financial projects solid EBITDA growth across the OMCs, driven by strong diesel cracks and partial recovery in gross refining margins:

However, integrated margins are likely to moderate slightly, reflecting crude inventory losses and softer auto-fuel marketing margins.

Global Oversupply Pressures Persist

JM Financial points to persistent oversupply in global oil markets as a key factor keeping Brent prices subdued. The International Energy Agency expects a global oil surplus of approximately 2.30 million barrels per day in 2025, rising to nearly 3.80 million barrels per day in 2026. This oversupply is driven by OPEC+ output increases and non-OPEC supply growth, with potential easing of sanctions on Russia amid a peace deal with Ukraine potentially adding further pressure.

Against this backdrop, JM Financial's analysis suggests that upstream producers like Oil India and ONGC offer more reliable medium-term growth prospects compared to downstream marketing and refining companies, which face both valuation and policy headwinds as the government may tap into windfall gains from lower crude prices through the upcoming Budget.

After a volatile 2025 marked by sharp rotations and uneven global performance, Indian equity markets are entering 2026 with a fundamental shift in leadership dynamics. JM Financial 's Managing Director & CEO Dimplekumar Shah expects the coming year to reward quality businesses with strong balance sheets, high return ratios, and visible earnings growth.

Market Outlook and Return Expectations

Shah anticipates Indian equities will deliver moderate double-digit returns of 12-15% in 2026, broadly aligned with earnings growth. This represents a transition from momentum-driven returns to earnings-led valuation expansion. The Nifty-50 one-year forward PE at 21x remains slightly above its long-term average of 20.4x.

Markets are expected to favour quality companies exhibiting strong growth, high return on equity (ROE), and low leverage, with technical indicators supporting a continued uptrend.

Sectoral Opportunities for 2026

Shah identifies several sectors positioned for outperformance based on fundamental and technical analysis:

High-Conviction Sectors

NBFCs lead the list with healthy disbursement growth, improving asset quality, and margin expansion, with further gains expected in the second half of FY26. Auto & Auto Ancillaries are positioned for volume-led growth supported by GST cuts, income-tax benefits, and lower interest rates.

Telecom benefits from structural tailwinds including tariff hikes and rising home/enterprise broadband penetration, while selective healthcare stocks are boosted by lifestyle disease trends and increasing health insurance penetration.

Technical Favorites

From a technical perspective, IT, Pharma, Metals, and Infrastructure sectors display robust chart formations indicating sustained leadership potential. Auto and PSU Banks continue reflecting encouraging bullish patterns across timeframes, having generated impressive returns from mid-2025 onwards.

Precious Metals Outlook

Gold and silver delivered exceptional returns in 2025, with gold gaining 65% and silver surging 127%. The performance was driven by US trade tariffs, geopolitical risks, and structural silver supply deficits due to AI and solar PV demand.

For 2026, the outlook remains constructive with expected US Fed rate cuts and rising ETF inflows supporting higher prices. However, Shah cautions that easy gains are behind us, with potential corrections from AI bubble concerns or geopolitical de-escalation.

Currency and Market Risks

The Indian rupee faced pressure in 2025, declining over 5% and surpassing the 90 mark against the USD. Shah expects the currency to remain in a broad range of 89-95 in 2026, supported by RBI's robust foreign exchange reserves of $689 billion and relatively benign crude oil prices of $60-65 per barrel.

Sectors to Trim

Shah advises reducing exposure in certain overvalued segments:

• OMCs where valuations have moved above historical price-to-book levels
• Railways and Defence where prices have run ahead of earnings potential
• Loss-making Internet/Platform stocks facing rising competition and market share pressures

Investors should consider partially booking profits while preserving core positions, with any 3-5% index pullbacks creating attractive re-entry opportunities.

IPO Market Expectations

The IPO cycle should remain robust in 2026, with 192 companies seeking to raise over ₹2.55 lakh crore. The pipeline includes marquee listings such as Reliance Jio, NSE, and Flipkart. However, with average listing gains of just 9.4% in late 2025, investors are likely to be more valuation-conscious going forward.

Key Market Triggers

Shah identifies three critical factors that will drive equity market performance in 2026:

• Earnings recovery trajectory with Nifty-50 earnings CAGR of 15-16% expected in FY27
• Global trade dynamics, particularly US-India relations and energy price stability
• Inflation trends and central bank rate-cut cycles both globally and domestically