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Stocks of state-owned oil marketing companies are likely to stay firm next week as sentiment will stay positive because the government Thursday said it intends to bring down the revenue loss of these companies by gradually increasing the prices of subsidised fuels. However, gains in the stocks of Indian Oil Corp, Bharat Petroleum Corp, and Hindustan Petroleum Corp are likely to be limited unless the movement in crude oil prices and the rupee is favourable. Thursday, Prime Minister Manmohan Singh said there was a need to lower subsidies to keep India's fiscal deficit under control. He also advocated phased revision in energy prices. Before that, a senior oil ministry official told reporters that the government is looking to increase prices of regulated fuels in a phased manner.
The government is keen on hiking the prices of kerosene by 10 rupees a ltr over the next two years, and increasing diesel prices by the same quantum over 10 months. If implemented, the hikes will help lower oil companies' revenue losses significantly. At current prices, state-owned oil retailers are losing around 9.3 rupees a ltr on diesel and 30.93 rupees a ltr on kerosene. The price of India's basket of crude oil has remained relatively stable this month at below $110 a barrel. The rupee too regained some strength against the US dollar, ending at 54.7500 a dollar yesterday. Last week friday, the rupee had closed at 55.0600 a dollar. Strength in the rupee augurs well for oil refiners as they meet more than 75% of their crude oil requirements through imports.
The stocks of these three companies will remain in a tight range taking cues from the market, crude oil prices, and the rupee's movement. While not much downside is seen in these stocks, the upside will depend on the beginning of the phased hike in fuel prices. Stocks of private oil giant Reliance Industries are seen weak in the near term, and will rise only if there is sustained upward movement in the market. The company's ongoing buyback of stocks, though not too successful, has prevented the stock from falling. The buyback will end on Jan 19. Reliance Industries' core refining business has come under pressure over the past two months, with refining margins declining globally because of sluggish demand and increase in capacity. Lower refining margins will weigh on the earnings of the company as Reliance Industries earns more than 70% of its revenue from the refining business.
