Shares of market leader Reliance Industries Ltd [ Get Quote ] dropped on the bourses in a strong market, after global brokerage firm Morgan Stanley said that the energy major's refining margin and exploration and production volumes may fall.

The stock opened on a positive note on Friday morning and gained nearly 1.8 per cent to touch an intra-day high of Rs 750.60, but witnessed heavy selling in the later part of the day.

At the end of the day's trade, the scrip settled at Rs 732.05, down 0.75 per cent on the BSE. It touched an intra-day low of Rs 728.35, down 1.24 per cent from its last close.

In a research note, Morgan Stanley said on Friday that two of three RIL's core divisions - refining and petrochemicals - face near-term headwinds, while, KG-D6 block volumes continue to decline.

On the other hand, Morgan Stanley said that Cairn India [ Get Quote ] stood to gain by way of its "production growth and free cash flow". Shares of Cairn India rallied ahead on the bourses and settled at Rs 336.30, higher by 2.51 per cent on the BSE.

"Cairn should benefit from three key factors: 1) increase in production due to swifter approvals; 2) improved realisation due to weakening of rupee, and 3) increasing free cash flow and attractive valuation," Morgan Stanley said in its research note.

The brokerage has downgraded the oil and gas sector due to negative outlook for refining and petrochemical margins, and higher subsidy burden due to a weaker rupee.

Noting that the 16 per cent depreciation in the rupee against the dollar in the last six months has led to an increase in subsidy burden to $26 billion, Morgan Stanley also downgraded oil marketing companies like HPCL [ Get Quote ] and BPCL [ Get Quote ].

However, HPCL shares gained 1.6 per cent, while BPCL slipped 0.8 per cent. Among other oil and gas sector stocks, OIL India rallied 3 per cent, Indian Oil [ Get Quote ] gained 0.4 per cent and Gujarat State Petronet [ Get Quote ] rose 4.3 per cent, while Petronet LNG [ Get Quote ] dropped 5 per cent and Gail India [ Get Quote ] slipped 3.2 per cent.

"The path to petroleum decontrol, in our view, seems to be delayed due to upcoming elections, a high crude oil price environment, and a weaker rupee," Morgan Stanley said adding that with five state elections in February, we think the earliest a moderate price hike could come is April.