Morgan Stanley warns about delay in Indian subsidy reforms

Remains cautious on Indian oil stocks, says material reforms look unlikely

Morgan Stanley "remains cautious" on Indian oil stocks, saying "any material reforms" look unlikely in terms of raising fuel prices, which could lead to "the highest ever" oil subsidy bill for the sector for the fiscal year ending in March.

Morgan Stanley said the oil subsidy bill could amount to Rs 1.9 lak crore in FY 2012-13 should the government not raise prices for diesel and oil. India heavily subsidies its fuel prices, with the burden shared by the government and the oil companies.

"With 10 state elections to be held in 2013 and the central government election in 2014, we think any material reforms unlikely," the brokerage said in a note.

The investment bank downgraded state-run ONGC to "equalweight" from "overweight" citing risks of potential downward revisions to domestic crude oil volumes for fiscal 2014 and uncertainty on international production.

Morgan Stanley also resumed coverage of GAIL with an "underweight" rating, citing declining domestic gas volumes and its subsidy share as key concerns.