Shares of oil firms zoom on fuel price decisions...

Banking stocks slip on inflation, rate hike fears.

Investors lapped up shares of state-owned oil companies on Friday despite the overall weak sentiment after the government decided to free up pricing of petrol and increase rates of other fuels. This would lower the subsidy burden of these companies.

The announcement boosted shares of the three state-owned oil marketing companies (OMCs) — Indian Oil Corporation (IOC), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (BPCL). Oil and Natural Gas Corporation (ONGC), the country’s largest producer, also gained.
 

GAINERS AND LOSERS
OIL STOCKS
Name	June 25, '10	% chg*
HPCL	401.05	13.66
BPCL	621.35	12.84
IOC	377.3	10.39
ONGC	1,264	6.35
Essar Oil	137.75	6.45
RIL	1,063.25	1.14
BSE SECTORAL INDICES
Oil & Gas	10,604.07	2.88
PSU	9,352.52	1.13
Healthcare	5,769.71	0.20
IT	5,323.87	-1.42
Metal	14,882.71	-1.85
Bankex	10,752.74	-2.19
Price on BSE in Rs                                  *Over previous close

HPCL, BPCL, IOC and ONGC were among the most active stocks, both on the Bombay Stock Exchange (BSE) and the National Stock Exchange.

HPCL rose 13.7 per cent to Rs 401.05, BPCL was up 12.8 per cent to Rs 621.35, while IOC went up 10.4 per cent to Rs 377.30 on BSE. In comparison, the Sensex fell 0.9 per cent, or 155.7 points, to 17,574.53. ONGC surged 6.35 per cent, or Rs 75.45, to Rs 1,264. The stock rose as much as 8.6 per cent to a 52-week high of Rs 1,290.90 during the day.

“All three OMCs are likely to see earning upgrades in the range of 20-25 per cent and thus we believe there is more steam left (in these stocks) even after Friday’s rally of 10-13 per cent,” said Alok Deshpande, an oil & gas sector analyst at Elara Capital.

The move to free up petrol prices will result in an increase of Rs 3.50 per litre. Diesel prices will rise by Rs 2 per litre. The price would be made market-driven later in the future. Kerosene prices would rise by Rs 3 a litre, while cooking gas prices would go up by Rs 35 a cylinder.

After this, analysts expect that the subsidy burden of state-owned oil companies will fall 24 per cent to Rs 53,000 crore for the current financial year, from the Rs 70,000 crore estimated earlier, assuming crude oil prices at $75 per barrel.

“Upstream oil refining companies will be the major beneficiaries rather than ONGC,” said S P Tulsian, a Mumbai-based independent investment analyst.

Analysts also expect that private refiners like Reliance Industries (RIL) and Essar Oil will again aggressively pursue their retail plans. “Reliance, which is operating only half of its about 1,400 outlets, may take some time to start the rest. Essar has been operating all its outlets and will start to benefit from the level-playing field,” said Elara’s Deshpande.

Essar Oil gained 6.45 per cent to Rs 137.75, while RIL rose 1.1 per cent to Rs 1,063.25.

However, banking stocks took a beating, as investors feared that a rise in fuel prices would stoke inflation, prompting the Reserve Bank of India to increase interest rates.

“On an average, the price increase works out to 9.9 per cent based on average Delhi prices. With a combined weight of 5.6 per cent in the wholesale price index, we can expect the direct impact on inflation to be 0.56 per cent,” said Madan Sabnavis, chief economist at CARE Ratings. “The indirect impact will increase overall inflation by 1.12 per cent. With overall inflation around 10 per cent, the impact is quite significant,” he added.

State Bank of India fell 2.4 per cent to Rs 2,300.80, ICICI Bank declined 3.1 per cent to Rs 857.50 and HDFC Bank lost 2.7 per cent at Rs 1,947.80.