Investment banker and securities firm Goldman Sachs on Wednesday downgraded Reliance Industries and Cairn India to 'Neutral', from 'Buy', on shrinking refining margins and regulatory issues.
The global firm, however, upgraded the state-owned HPCL, ONGC and IOC to 'buy' list and retained the 'Neutral' outlook on other oil companies including GAIL, GSPL, BPCL and Oil India.
"We remove RIL from our Asia Pacific Conviction list and downgrade it to 'Neutral' from 'Buy' as we are concerned about lack of clarity on its sustainable growth drivers, implying limited scope of medium-term earnings surprise following 4Q results," Goldman Sachs said in a report.
The downside risks with regard to RIL, the report said, include "weak refining margin and low petrochemical margins".
The report also expressed concern over the performance of RIL's "E&P (exploration and production) division owing to a lack of clarity on D-6 production levels and slow progress in exploration acreage".
RIL's shares slipped 1.65% to Rs 985.15 on the Bombay Stock Exchange on Wednesday.
With regard to Cairn India, Goldman Sachs said, that although it had upgraded the oil company to 'Buy' category in July 2010, the stock underperformed mainly on account of the "Cairn-Vedanta deal overhang".
The downside risks for Cairn include fall in crude prices, delay in production ramp-up and adverse regulatory developments.
Shares of Cairn India closed down 0.13% at Rs 348.20 on the BSE.