Stocks of oil marketing companies are likely to remain in a range with positive bias next week, taking cues from the government's stand on the fierce opposition to Thursday's hike in diesel prices and cap on number of subsidised cooking gas cylinders. Shares of oil companies ended in the red yesterday, after rallying significantly in early trade on profit booking and fear that the outcry against the decision may force the government to roll back the measures.
Moreover, the decision to hike diesel price hike by 5 rupees per ltr will ease only a small portion of the burden on oil marketing companies--Indian Oil Corp Ltd, Bharat Petroleum Corp Ltd and Hindustan Petroleum Corp Ltd. Almost 30% of the benefit that will accrue will be pocketed by the government.
We see the government's decision as a moderate positive for the Government-owned oil companies. Thursday's 5-rupee hike in diesel prices includes 1.50 rupees on account of increase in excise duty. Also, revenue losses for the current financial year remain very high at an estimated 1.67 trln rupees at current crude prices.
Post this action on duty tinkering and price increase effected by the government, the scenario, although improving at the margin, remains grim considering the under recovery for FY13. However, the sentiment for oil companies' shares will be positive with little downside risks from current levels as the broad market is expected to rally next week following today's announcement on opening up the aviation sector to foreign airlines and allowing foreign direct investment in multi-brand retail.
Among the three companies, the maximum upside is seen in HPCL because of the high discount it is getting among peers. BPCL is seen the next best bet both
because of its better financial condition and lucrative upstream portfolio.
The decision to divest government's stake in some public sector companies will be a positive for government-owned companies. Shares of upstream and midstream companies like Oil and Natural Gas Corp Ltd, Oil India Ltd, and GAIL (India) Ltd are seen in the positive territory next week.
Reliance Industries shares are expected to gain next week in line with the broad market trend. The recent improvement in refining scenario and an improvement in outlook on its exploration business will further aid the company's shares.
