Diesel subsidy pulls down oil PSU stocks
July 15: Stocks of public sector oil companies took a beating on Thursday after the government ruled out a hike in diesel prices. On Thursday, shares of Bharat Petroleum, Hindustan Petroleum and Indian Oil dropped by 4-6 per cent.
The fall came after the oil secretary, Mr S. Sunderesan, reiterated on televsion that the government wasn’t even thinking of hiking diesel prices now. On Wednesday he was even more categorical and said that the government was not thinking of deregulation of diesel. The deregulation of diesel prices had been strongly recommended by the empowered group of ministers and was even supported by the Prime Minister. The OMC stocks —HPCL, BPCL and IOC had run up between 25-30 per cent in the last one month on hopes of petrol and diesel being deregulated.
For most of the past five years, these companies have been selling key fuels — diesel, petrol, LPG and kerosene oil — at below cost. Their losses have been made good by a mix of subsidy from the government and burden sharing with upstream oil firms such as ONGC.
As the largest selling petroleum product, diesel has also accounted for the bulk of oil company losses. However, given the strong political opposition to fuel price hikes and increasing inflation, the government seems to have lost the will to move on the issue. “When petrol deregulation was announced and prices of both petrol and diesel have been raised, the hopes of the market were raised further and stocks ran up. The marlet was sure that diesel would be deregulated by the end of July,” says Mr Ambreesh Baliga of Karvy Stock Broking.
The government has pegged losses of fuel sales below cost at Rs 52,000 crore for FY11. Analysts expect the industry to lose Rs 18,000 crore in the first quarter. Of this, the diesel and petrol share is pegged at Rs 7,500 crore.
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