Oil and gas stocks were on a roller coaster ride on Friday, flying high in the morning trade on the decision of the doubling of the natural gas price only to shed some of the gains around noon following observations by the Finance Minister P. Chidambaram that the Government would consider helping out some of the user industries hit by high prices.
But at the end of trading, the key stocks in the sector were able to bounce back, though they still closed below the highs they had touched during intra-day.
The decision by the Cabinet Committee on Economic Affairs (CCEA) on Thursday to nearly double the domestic gas price led to a flare up in the share price of ONGC, Reliance and Oil India. While ONGC touched a high of Rs 353.05, RIL rallied to a high of Rs 873 and OIL touched a high of Rs 621. Though Chidambaram did not outline any specific steps to mitigate the impact of higher gas prices on industries such as fertiliser and power, he said the Government would consider helping them. He said Government could look at ‘fixing the input costs for these sectors’ and the issue would be addressed later.
Cost-sharing fears
This led to sell-off in some of the PSU gas stocks such as ONGC and OIL possibly because of investor fear that some of the gains these companies might make would be eroded due to cost sharing. ONGC slipped to Rs 325.85, OIL went down to Rs 556, a loss of 16.15 and RIL was dragged to Rs 854.75.
The trading mood in the oil and gas stocks before and after the Finance Minister’s press conference could be gauged by looking at the behaviour of the CNX Energy index. The index, which had gained about 260 points in the morning, saw its gains pared to about 193 points post-press meet at around 12.30 p.m.
Commenting on the gas stocks’ behaviour, Bhavesh Chauhan — Senior Research Analyst — Oil and Gas, Angel Broking, Mumbai, said the ONGC and Oil India shares had risen by 5-7 per cent today morning after factoring in higher gas prices. But after Chidambaram’s observations indicating that gas price rise ‘could be partially offset by higher subsidy burden’, both the stocks declined. However, Reliance Industries remained in positive territory since it was one of the key beneficiaries of the gas price hike. He felt that ‘additional volumes from KG D6 could be a key catalyst for the stock hereon’.
The Centre’s subsidy burden is likely to increase by Rs 8,300 crore at current exchange rates said India Ratings. Further depreciation in the rupee could push up the burden to Rs 14,000 crore, it added. A Crisil report estimates that interest cost of urea manufacturers would increase due to rising dependence on subsidy; power purchase cost of power distributors would rise by about 15 paise a unit; profitability of city gas distribution companies to be hit with a 10 per cent rise in input cost and the gross profits of gas based petrochemical plants to halve from 41 per cent to 20 per cent.
The comments of Chidambaram helped soothe investor sentiment towards power stocks as well. Tata Power, which dipped to a low of Rs 81, recovered to close at Rs 86.45 and Reliance Power jumped by Rs 3.70 to close at Rs 64.85 after hitting a low of Rs 61.25. It was a perfect 10 for the Energy index with all the ten stocks making the index closing in the green.