Oil Stocks Outlook for the week – 09 to 13.Jun.2014
(www.rupeedesk.in)
(www.rupeedesk.in)
After the massive gains
accumulated this week, stocks of the state-owned oil companies
may take a breather in the five
sessions but the overall trend will remain bullish on hopes
of big bang reforms to be
implemented by the new government.
Oil and gas stocks surged on hope
the government will soon approve the revised gas
prices under the formula cleared
by the previous United Progressive Alliance
government, which could almost
double the existing $4.2 per mBtu rate. Oil and Natural
Gas Corp Ltd and Reliance
Industries Ltd will be the biggest beneficiaries of the move
resulting in the higher price for
domestically-produced gas.
The new prices were to be
implemented from Apr 1 but could not be notified because of
the elections and the new government
is yet to take a call. The government could notify
the new prices as early as July.
A senior oil ministry official
told reporters that clarity on key issues in the oil and gas
sectors, including revision of
gas prices and pricing of subsidised fuels, will emerge next
week after senior officials of
the ministry meet Prime Minister Narendra Modi.
The gas pricing issue will be on
top of the oil ministry's presentation to Modi. Further
upside in these stocks would be
incumbent upon a positive decision on gas prices which
are highly anticipated. The issue
of pricing of subsidised fuels is another issue likely to be
taken up in the meeting. The new
government has so far allowed Indian Oil Corp Ltd,
Bharat Petroleum Corp Ltd and
Hindustan Petroleum Corp Ltd to continue their monthly
diesel price hikes.
The revenue loss on diesel has
declined to just 2.80 rupees an ltr now which could be
wiped out in less than six months
if the hike continues. The final decision on the issue
will have to be taken by the
Cabinet Committee on Political Affairs. All three stocks will
take directions from news flow on
the matter and most market participants expect it to be
positive. Broadly, revenue losses
of the oil marketing companies are likely to decline
sharply in the currently
financial year which would improve their financial health
significantly. It will also help
companies such as ONGC and Oil India that have to share
a large chunk of the subsidy
burden.
We see diesel price decontrol in
next six months. With possible pricing clarity coming
and reduction of diesel
losses, we see higher net realisation for ONGC in FY16/FY17