Stocks of the three state-owned oil marketing companies are seen subdued next week despite expectations of hike in prices of regulated fuels in the near future. Softening crude oil prices may give some upside to the stocks of Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd if the rupee remains stable at current levels or stages a recovery. With a grim fiscal situation and threat of a sovereign rating downgrade looming large, we see price hikes coming soon. Talk of a hike in diesel prices has been going on for the past few weeks but the government has not yet shown any indication of going ahead with it fearing backlash from coalition partners. The market trend will also be a key factor in determining the trend in these stocks but overall volumes in the sector may remain subdued as the focus will be on interest rate sensitive stocks ahead of Reserve Bank of India's first quarter policy review on Tuesday and also on companies announcing Apr-Jun results.
The RBI to cut key rates as poor monsoon is likely to keep inflation at levels above its comfort zone. So, overall market sentiment is seen negative. In the quarter ended June, the three marketing companies together lost 478 bln rupees on the three subsidised fuels diesel, kerosene and cooking gas. Of this, state-owned upstream oil companies Oil and Natural Gas Corp Ltd, Oil India Ltd, and GAIL (India) Ltd will stocks around 32%. The burden is lower than the 40% subsidy shared by these companies in 2011-12. However, the lower subsidy burden is unlikely to help stocks of the upstream companies as the burden is usually increased towards the end of a financial year.
Stocks of upstream companies are seen tracking the market. Reliance Industries is expected to remain in the 750-700-rupee range next week, as concerns over declining KG-D6 gas output and refining margin may prevent its stocks from rising while the company's ongoing buyback will cap the downside.
(www.rupeedesk.in)
