Oil and gas stocks gave thumbs up to the Petroleum Ministry’s announcement of authorising the oil marketing companies (OMCs) to go in for revision of diesel prices periodically on Thursday.
Not only public sector undertaking companies have rallied, even private majors such as Reliance Industries and Essar Oil jumped sharply.
Indian Oil Corporation after seeing a rally build through the day finally closed at Rs 395.90, up 6.60 per cent from its previous day’s close followed by HPCL which ended the day at Rs 345.60, up 6.06 per cent on the BSE.
Oil India and BPCL too closed up 4.36 per cent and 3.75 per cent from their previous close on the BSE.
Ambiguous
However, oil and gas sector analysts warned that the market reaction was more sentimental and these stocks could see volatility going forward in the wake of ambiguity from the Government on the quantum and frequency of the price hike in diesel.
“The market is expecting a diesel price hike of Rs 2 in the first round, but if the expected hike falls less than that, then we could see a correction of about 5 to 10 per cent due to profit-booking in the scrips of OMCs,” said Sumit Pokharna, Kotak Securities, Deputy Vice-President Research.
However, another senior analyst said: “If we see action of OMCs actually increasing diesel prices and the Budget session goes through without political opposition to the OMC’s going for periodic hikes, there could still be an upside of 30 to 70 per cent in OMC stocks.”
Analysts also maintained that the upstream companies such as ONGC would be the bigger beneficiaries of the announcement compared to OMCs.
Govt to benefit
“With the price hikes, the overall under recoveries of the OMCs would reduce to the extent of the hike but the real gain would go to the Government kitty in the form of reduced subsidy outgo and a reduced fiscal deficit. However, their cash generation for OMCs would be faster in the next fiscal depending on when the hikes kick in. Its material effect would be seen after this March,” added Pokharna.
The rally in the sector also had a positive rub-off effect on the Reliance Industries and Essar Oil scrips, which have rallied to their 52-week high of Rs 893.55 and Rs 77.7 respectively on the BSE today. Both the stocks closed a tad lower from year-high levels.
The strong show by Reliance Industries stock also helped it to overtake ITC as the most influential stock on the Sensex. Reliance Industries’ weightage jumped to 9.33 per cent in the Sensex, from 9.09 per cent on Wednesday. Another trigger for the rise for Reliance Industries’ could be its year-long buyback window is coming to an end on January 19.