OMCs recover after two-day sell-off; HPCL jumps 6%, IOCL, Gail gain 4% each

MK Surana, chairman and MD of HPCL, said there is no permanent shift in the government policy and the current move is only a short-term intervention to cool off consumer prices.

Shares of oil & gas and state-run oil marketing companies (OMCs) rose in the early morning deals on Monday, after witnessing heavy sell-off in the last two trading sessions.

At 09:52 am, Hindustan Petroleum Corporation (HPCL) was trading nearly six and a half per cent higher at Rs 176 a piece on BSE while Bharat Petroleum Corporation (BPCL) was trading at Rs 274, up 3.32 per cent. Shares of IndianOil was trading over 4 per cent higher at Rs 123.05. 

                

Investor confidence in public sector oil and gas companies and OMCs took a massive hit last week after the government announced cut in excise duties in petrol and diesel prices by Rs 2.50 per litre and asked the refiners to absorb a Re 1 per litre cut in excise duty on petrol and diesel.

After the announcement, global brokerages such as Goldman Sachs and Citigroup Global Markets downgraded the stocks saying the imposition of price controls was an 'unequivocal negative' that underscores 'high political risk' associated with state-owned enterprises.

Analysts at Ambit believe OMCs will make losses in petrol and very thin profits on diesel, assuming the operating cost of Rs 1.3 a litre. Therefore, if there is a further government intervention and OMCs are unable to pass on prices, there could be more stress on marketing margins and profitability.

However, OMCs have indicated that the government’s move is temporary. M K Surana, chairman and MD of HPCL, during an investor conference call said that there is no permanent shift in the government policy and the current move is only a short-term intervention to cool off consumer prices. Daily pricing mechanism will continue, he added.

Among other stocks, shares of ONGC was trading one and a half per cent higher at Rs 149.15 apiece on BSE while those of GAIL was up nearly 4 per cent at Rs 343.35 per share.