www.rupeedesk.in
Stocks of state-owned upstream companies may remain subdued next week on concerns over a likely increase in their stock of subsidy burden on account of revenue loss incurred by public-sector oil-marketing companies on sale of subsidised fuels. Finance Minister P. Chidambaram told Parliament yesterday that state-owned oil and gas producers may have to bear a greater part of the fuel subsidy burden as the government is looking to trim its share in order to curb the widening fiscal deficit. Public-sector oil retailers Indian Oil Corp, Hindustan Petroleum Corp Ltd, and Bharat Petroleum Corp Ltd sell kerosene, diesel and cooking gas at rates lower than the market prices. The revenue loss is then compensated through cash subsidy by the government, discounts by upstream companies Oil and Natural gas Corp, Oil India Ltd and GAIL (India) Ltd, and partly by the oil retailers themselves.
In the first half of the current financial year, public-sector oil retailers' revenue loss on sale of subsidised fuels is pegged at 855.86 bln rupees. For the full year, the revenue loss is seen around 1.7 trln rupees. Usually, the upstream companies stock a third of the revenue loss but over the last few years, the government has raised their burden to almost 40%. A further hike in that portion will reduce their profitability and hence may weigh on the performance of the companies' stocks. Stocks of the oil-marketing companies will continue to track global crude oil prices and the rupee-dollar movement. The Indian currency remained stable against the greenback this week but crude prices increased slightly. Also, refining margins have declined globally over the last few weeks, which will further compress the profitability of refiners. We believes that valuations of BPCL and ONGC are attractive, but medium-term outlook on their core business remains weak.
