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COVID-19 scare: Oxygen stocks jump up to 100% in 1 month; should investors buy?

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Shares of oxygen stocks—National Oxygen, Bhagwati Oxygen—have risen over 5 percent Wednesday. The shares of National Oxygen, a producer and supplier of industrial gases, including oxygen, have risen 20 percent in the past five days. Bhagwati Oxygen, a gas manufacturing company that supplies oxygen, has seen an uptick as well. Linde India is, however, bucking the trend, rising only 1 percent in five sessions. As these stocks surge, Bombay Oxygen Investments, which does not deal in oxygen anymore has also seen an uptick in its stock price.

COVID-19 scare: Oxygen stocks jump up to 100% in 1 month; should investors buy?
Shares of oxygen stocks—National Oxygen, Bhagwati Oxygen—rallied over 5 percent Wednesday as the third wave of COVID-19 infections has gripped the country. The coronavirus cases—driven by the Omicron variant, the more transmissible permutation and the Delta variant, the more fatal variant—were the highest in 230 days on Wednesday.
The shares of National Oxygen, a producer and supplier of industrial gases, including oxygen, have risen 20 percent in the past five days. Its stock price has surged over 95 percent in the past month. At the last count, the shares were trading at Rs 218.
Bhagwati Oxygen, a gas manufacturing company that supplies oxygen, has seen an uptick as well. Its shares have risen over 20 percent in the past five sessions. And in the past month, it has clocked returns to the tune of 100 percent. At the last count, the shares were up to Rs 81.
Linde India shares, however, have declined 0.3 percent Wednesday. In the past five sessions, it has surged 1.25 percent. The stock has notched gains to the tune of 150 percent in the past year. At the last count, it was trading at Rs 2,544.
Experts suggest the rise in COVID-19 cases in the country has resulted in a higher demand for these stocks. “During the second wave of the pandemic, we witnessed complete chaos as there was a sudden surge in demand for medical oxygen. Given that since cases are rising again, traders are again looking for stocks from this space in anticipation of rising demand,” Ruchit Jain, Lead – Research, 5Paisa.com told CNBCTV18.com.
India reported a little less than 2 lakh cases Wednesday, with over 4,800 cases of the Omicron variant. Simultaneously, there have been over 440 fresh fatalities. The number of new cases in the country was the highest in 230 days, data from Health Ministry showed.
Maharashtra is the worst affected state in the country, even as Mumbai’s mayor Kishori Pednekar said the cases are coming down in the city.
Studies from across the world have shown Omicron is less severe than its predecessors. Compared with the Delta variant, Omicron infections were half as likely to send people to hospitals. Plus, the people who did end up in hospitals stayed in the hospital for a lesser duration.
Considering this, the oxygen demand is likely to be lower this time around. In fact, Linde India’s South Asia Head, Moloy Banerjee told CNBC-TV18 that demand for COVID-related oxygen demand has gone away.
“2021 has been a pretty good year for us. Some of it has been on the back of a surge in oxygen demand, which was largely due to the COVID pandemic. ... But as we move into the fourth quarter of the calendar year, a lot of the COVID related oxygen demand has gone away and a lot of the industrial demand pickup has started happening,” Banerjee said.
During the second wave of COVID-19 infections, India’s healthcare system was overwhelmed, and the demand for medical oxygen had surged to 60 percent of the total daily oxygen production by mid-April 2021.
At the time, these oxygen stocks had gained over 50-100 percent between March-April alone.
“While the Covid cases are rising, this time we are thankfully not witnessing a surge in the hospitalisation of patients as compared to that during the second wave. Also, many of the cases are asymptomatic where patients can be cured at home itself. Thus, it may not lead to a sharp surge in demand for medical oxygen,” Jain said.
Bucking the trend
While most oxygen stocks are extending gains, Linde India has barely risen over 1 percent in the past 5 sessions. Jain believes it is because its stock price has rallied significantly in the past year and a half. “Prices are now consolidating within a range which could be termed as a time-wise correction,” he said.
What’s in a name?
“That which we call a rose by any other name would smell just as sweet,” William Shakespeare had said in Romeo and Juliet to say that naming of things is irrelevant. Untrue in stock markets, however.
The shares of Bombay Oxygen Investments surged over 10 percent Wednesday. In the past week alone, it has gained over 40 percent. And in the past year, it has surged nearly 100 percent, riding on the wave of oxygen demand.
The company had discontinued manufacturing oxygen and other industrial gases in 2019. But since the name has the word oxygen, it has enjoyed an impressive rally in the Covid period.
What to do with oxygen stocks? Buy, sell, hold?
In the near term, Jain suggests holding the stocks as an uptick in demand for medical oxygen could lead to an upmove in the stock prices.
“Investors can continue to hold the stock such as Linde India as there are no signs of a trend reversal,” Jain said. He added that the stock had not seen any significant volumes in this time-wise correction, considering the volumes were good during price up-moves.
Since markets are forward-looking, investors can “ride on this trend with a trailing stop loss method, which could be one of the best strategies,” he said. Trailing stop loss is an exit strategy to limit losses. In this strategy, if the share price dips to a certain level, investors’ positions are sold automatically at the current market price. This helps prevent further losses.
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