Oil and Gas Is Most Under-Owned Sector in Indian Mutual Funds as Weight Falls to 5.2% After Iran Conflict Hit

The Oil and Gas sector has become the most under-owned sector in Indian mutual fund portfolios, with the aggregate sector weight declining to 5.2%, a significant discount to the sector’s 9-11% representation in broader indices like the Nifty 500. The sector’s fall from favour has been driven by the sharp uncertainty during the US-Iran conflict that pushed Brent crude to $107 per barrel, compressing downstream refiner margins through government-imposed retail price caps and creating earnings visibility concerns across the value chain. With Brent now near $79 per barrel, down approximately 28% from the conflict peak, the Oil and Gas sector’s under-ownership has become a contrarian data point that analysts say warrants close attention.

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Oil and Gas Sector MF Allocation at a Glance

Oil and Gas Sector Data	Detail
MF Sector Weight (Oil and Gas)	5.2% (most under-owned sector in Indian MF portfolios)
Index Weight (approx)	~9-11% in Nifty 500; ~8-9% from Reliance alone in Nifty 50
Under-ownership Gap	~4-6 percentage points vs benchmark weight
Brent Crude (June 18, 2026)	~$77-79 per barrel
Brent Crude Peak (Conflict)	~$107 per barrel (April-May 2026)
Decline From Peak	~28% fall as US-Iran truce removes geopolitical premium
ONGC (NSE: ONGC)	Rs 245.40 (+0.16%) | Upstream; lower crude = lower realisations
BPCL (NSE: BPCL)	Rs 316.10 (-0.58%, high Rs 321.60) | Downstream; lower crude = better margins
Indian Oil Corp (NSE: IOC)	Rs 145.82 (+0.28%) | Downstream refiner and retailer
GAIL (NSE: GAIL)	Rs 176.25 (+0.70%) | Gas transmission
Reliance (NSE: RELIANCE)	Rs 1,327.30 (broadly flat) | Largest O&G sector constituent

Why the Oil and Gas Sector Became India’s Most Under-Owned in Mutual Funds

The Oil and Gas sector’s fall to a 5.2% weight in Indian mutual fund portfolios is the result of a perfect storm of factors over the April-June 2026 period. The US-Iran conflict, which shut the Strait of Hormuz and spiked Brent crude to $107 per barrel, created an extreme environment of earnings uncertainty for the entire sector. Upstream companies like ONGC and Oil India faced the prospect of windfall revenues at high crude prices being partially captured by the government through taxes and royalties. Meanwhile, downstream oil marketing companies including BPCL, HPCL and IOC bore the brunt of government-imposed retail price caps, which prevented them from passing the full $107 crude cost to consumers, hammering their marketing margins and profitability.

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The Under-Ownership Case: Downstream vs Upstream

The most important distinction in the Oil and Gas sector under-ownership thesis is between downstream and upstream. As Brent normalises from $107 to $77-79 following the US-Iran truce, the impact on individual companies is very different, and the contrarian opportunity is not uniform across the sector.

Company Type	Impact of Lower Crude	Key Companies
Upstream (Exploration)	Lower realisations per barrel; earnings pressure	ONGC, Oil India
Downstream (Refining/Marketing)	Lower input costs; marketing margin recovery	BPCL, HPCL, IOC
Gas Transmission	Lower direct crude linkage; stable volumes	GAIL, Petronet LNG
Integrated (O2C)	Refining margin dependent; crude is both cost and product input	Reliance Industries

1. Downstream OMCs: The Primary Re-Rating Candidate

With Brent falling approximately 28% from the peak, downstream oil marketing companies, specifically BPCL, HPCL and IOC, face the most direct margin improvement potential. During the conflict, these companies were forced to absorb high crude costs against capped retail prices. As crude normalises, their marketing margins recover, particularly if the government allows gradual retail fuel price adjustments. The combination of lower input cost and potential price action creates a meaningful earnings recovery trajectory for downstream OMCs, which are also trading at multi-year discount to historical valuations.

2. ONGC: Upstream Caution Despite Under-Ownership

For ONGC, the under-ownership narrative is more nuanced. While the stock has underperformed during the conflict period and mutual fund allocations have been cut, the upstream producer’s earnings are directly tied to crude realisations. Lower crude from $107 to $77-79 compresses the revenue per barrel, which can offset any geopolitical risk premium removal. ONGC investors need to weigh the valuation support from under-ownership against the fundamental earnings headwind from normalising oil prices.

3. The Institutional Re-Rating Catalyst

The contrarian signal from sector under-ownership is most powerful when combined with an improving fundamental backdrop. For the Oil and Gas sector, that backdrop is emerging: Brent is stabilising at $77-79, Iran is returning to the market in an orderly way, the Strait of Hormuz is reopening, and downstream marketing margins are recovering. If mutual funds need to increase their 5.2% sector weight back toward the 7-9% range, the incremental buying across BPCL, IOC and GAIL could create meaningful support for these stocks regardless of crude direction.

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Conclusion

The Oil and Gas sector has become the most under-owned in Indian mutual fund portfolios at 5.2%, a gap of approximately 4-6 percentage points below benchmark index weights. The under-ownership reflects the sector’s difficult environment during the US-Iran conflict, where Brent peaked at $107 and downstream OMCs were caught between high crude costs and capped retail prices. With Brent now near $79 following the US-Iran ceasefire, and the Strait of Hormuz reopening, the sector’s fundamentals are improving, particularly for downstream companies. However, upstream companies like ONGC face earnings pressure from lower crude realisations. The contrarian opportunity is real but differentiated across the value chain. Consult a SEBI-registered financial advisor before investing.

Why has the Oil and Gas sector become the most under-owned in mutual funds?

Ans. The Oil and Gas sector has become the most under-owned in Indian mutual fund portfolios, with aggregate sector weight falling to 5.2%. The decline reflects the sector’s sharp underperformance during the US-Iran conflict that ran from April to June 2026. Upstream companies like ONGC faced earnings uncertainty as the geopolitical situation evolved, while downstream oil marketing companies like BPCL, HPCL and IOC were squeezed by retail fuel price caps that prevented them from passing on the full cost of $107 Brent crude to consumers, compressing marketing margins.

What does under-owned mean for mutual fund sector allocation?

Ans. Under-owned means that mutual funds collectively hold a smaller weight in a sector than that sector’s weight in the benchmark index. If the Oil and Gas sector represents approximately 9-11% of the Nifty 500 or broader market indices, and mutual funds have trimmed their collective allocation to 5.2%, the sector is approximately 4-6 percentage points underweight. This is a contrarian signal: when a sector is deeply under-owned by institutional investors, any improvement in fundamentals or sentiment can trigger rapid allocation increases, which can support stock prices.

What is Brent crude oil’s price today and how did it get here?

Ans. Brent crude oil is near $77-79 per barrel as of June 18, 2026, down approximately 28% from its conflict peak of approximately $107 per barrel reached during the height of the US-Iran war in April-May 2026. The decline accelerated after Washington and Tehran signed an interim ceasefire agreement, which is expected to allow Iran to resume oil exports immediately and reopen the Strait of Hormuz to shipping. Brent has fallen in five straight sessions, reaching its lowest level since early March 2026.

How does lower crude oil affect Indian Oil and Gas companies?

Ans. Lower crude oil prices affect different Oil and Gas companies differently. For downstream companies like BPCL, HPCL and IOC, lower crude reduces their input costs, potentially improving marketing margins if retail fuel prices remain stable or rise modestly. For upstream producers like ONGC, lower crude reduces realisations per barrel, compressing earnings. For transmission companies like GAIL, the direct crude linkage is lower. For refiners with large refining margins, lower crude helps if product crack spreads remain healthy. The net impact on the sector is mixed but downstream benefits more.

What are the current prices of key Oil and Gas sector stocks?

Ans. Key Oil and Gas sector stocks as of June 18, 2026: ONGC at Rs 245.40 (up approximately 0.16%), BPCL at Rs 316.10 (down approximately 0.58%, day high Rs 321.60), Indian Oil Corporation (IOC) at Rs 145.82 (up approximately 0.28%), GAIL at Rs 176.25 (up approximately 0.70%), and Reliance Industries at Rs 1,327.30 (broadly flat). The sector is trading with mixed signals as investors weigh the contrasting impact of lower crude on upstream versus downstream companies.

Is there a contrarian opportunity in Oil and Gas stocks after the under-ownership?

Ans. When a sector reaches historic under-ownership levels in mutual fund portfolios, it can represent a contrarian opportunity if the fundamentals are improving or stabilising. For Oil and Gas, the US-Iran truce has reduced geopolitical risk and crude is normalising from the extreme $107 level. Downstream companies like BPCL and IOC stand to benefit most if marketing margins recover and the government allows gradual retail price normalisation. ONGC may face earnings pressure as realisations fall, but geopolitical risk premium removal benefits the whole sector. Consult a SEBI-registered financial advisor before investing.

What is the Oil and Gas sector’s weight in Nifty indices?

Ans. The Oil and Gas sector has a combined weight of approximately 9-11% in the Nifty 500 index, driven by large-cap constituents including Reliance Industries, ONGC, BPCL, HPCL, IOC and GAIL. With mutual funds collectively at 5.2% sector weight, the gap of approximately 4-6 percentage points represents significant under-ownership relative to the benchmark. In the Nifty 50 specifically, Reliance Industries alone has a weight of approximately 8-9%, with ONGC and other O&G names adding another 3-4 percentage points.

What risks remain for Oil and Gas sector stocks even after the Iran truce?

Ans. Even after the US-Iran ceasefire, key risks for Oil and Gas sector stocks remain. First, the Iran deal is an interim agreement and Trump has warned that military action could resume if Iran does not comply, creating potential re-escalation risk. Second, lower crude compresses ONGC’s earnings, and retail fuel price adjustments by the government are politically sensitive. Third, global oil oversupply concerns are rising as Iran re-enters the market alongside higher OPEC+ quotas and IEA forecasts of a supply glut. Fourth, the global energy transition narrative continues to weigh on long-term valuation multiples for fossil fuel companies.