Shares of Oil and Natural Gas Corp (ONGC), one of the most-valued Indian companies, surged 5.74 per cent on Thursday, thanks to a steep rise in petrol prices.
State-owned oil marketing companies (OMCs) on Wednesday raised petrol prices by a record Rs 7.50 a litre, as the losses on selling the fuel below the market price have reached around Rs 2,400 crore so far this financial year. Besides ONGC, shares of Oil India Ltd, gained 1.7 per cent to close at Rs 454.50 on the Bombay Stock Exchange, while GAIL India Ltd surged 0.4 per cent to close at Rs 325.35.
However, the same could not be witnessed on the counters of oil marketers. Stocks of Hindustan Petroleum Corp Ltd (HPCL) and Indian Oil Corp (IOC) lost 1.18 per cent and 0.94 per cent, respectively, while those of Bharat Petroleum Corp Ltd (BPCL) ended the trading session with half-a-percentage gain at Rs 725.90.
According to market experts, there should not be too much reading into price rises as far as stock movements are concerned. In the initial trade, shares of HPCL, BPCL and IOC opened with a gap at a time when key benchmark indices were trading flat. However, during the course of the trading session, these counters pared their gains as profit booking set in and closed weak on a day when key indices jumped 1.7 per cent.
“It was well-known that as soon as the Parliament session was over, a hike in fuel prices would be implemented. In anticipation of this, traders had built up their positions and booked profits today,” says Ambareesh Baliga, chief operating officer at Way2Wealth Securities. He ruled out any further upward move in oil stocks.
Market analysts add the step will be helpful to some extent in controlling fiscal deficit. But beyond this, there is no impact on stocks, per se, unless there are some structural changes in the government’s subsidy policy.
According to Sonal Varma, economist at Nomura Financial Advisory and Securities (India): “From a macro perspective, we do not think this is enough. Oil companies continue to face substantial losses on selling other fuel products at below-market prices. A hike in other fuel prices, if implemented, would help the government cap its subsidy bill at under two per cent of GDP (gross domestic product) and would also make the oil import bill more elastic as consumers ration demand. We expect a marginal hike in other fuel product prices in the coming months."
While this price hike will not help reduce the subsidy burden or fiscal deficit as petrol is already deregulated (the government does not bear a share of the under-recoveries on petrol), it will benefit the OMCs as they will not incur losses on the sale of petrol, adds a report from Crisil.
In 2011-12, under-recoveries on the sale of regulated fuels increased by 80 per cent over the previous year to Rs 1.38 lakh crore. Of this, the government has agreed to bear the larger share of Rs 83,500 crore.