Energy shares gained with oil exploration companies and marketing companies rising, and gas explorers and distributors falling a day after the Union Budget 2017-18 provided for adequate subsidy support, avoided import duty on crude oil, and showed the government’s positive intent by announcing creation of a mega integrated oil PSU of international standards.
S&P BSE Oil & Gas index was up 0.73% at 13,124 points amid firm broader markets. BSE Sensex was up 0.36% at 28,243.21 points, while NSE Nifty held above the 8,700-mark at 8,739.3 points, up 0.26%.
Earlier Wednesday, Finance Minister Arun Jaitley proposed setting up an integrated oil PSU (public sector undertaking) by merging companies with synergy. Though it has been proposed earlier as well, the fresh announcement signals the government’s intent to support the energy sector in achieving a global scale to compete with the biggest of oil companies.
Oil marketing companies
Jaitley also reduced the subsidy support target for the next financial year by about 9% to Rs 25,000 crore, which is being considered enough despite a recent rise in crude oil prices.
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Indian Oil Corp, India’s largest refining and fuel marketing company, was trading up 2.41% at Rs 384.45 on BSE; Hindustan Petroleum Corp was up 2.2% at Rs 549.35; Bharat Petroleum Corp was trading up 1.54% at Rs 704.4.
HDFC Securities said in a research note that it does not see any financial burden on oil marketing companies till the time the global crude oil prices remain below $60 per barrel.
Global crude oil prices have risen since November when OPEC, a group of 13 oil producing nations, decided on November 30 to cut global crude oil output by 1.2 million barrels per day. Price of Indian basket of crude oil has risen to $54.24/bbl for the fortnight of January 16, from $53.05/bbl for the preceding fortnight. Further, a slightly weakened Indian rupee against the US dollar extends the pressure upon Indian crude oil buyers.
The Union Budget has also skipped levying import duty on crude oil, which was being feared as part of the government’s efforts to boost its revenue in order to help bridge fiscal deficit. The impact is positive on the OMCs, HDFC Securities said.
Oil exploration companies
Explorers also gained. Oil and Natural Gas Corp, the largest, was up 0.85% at 201.9, after rising to the day’s high of 204.5. Oil India Ltd, the smaller explorer, was trading up 3.16% at Rs 341.6, near its day’s high of Rs 342.8.
ONGC has said that the proposed integration of oil PSUs will be a big positive for the sector as an integrated company is well positioned to handle volatility in crude oil prices, ET Now reported citing ONGC without identifying the spokesperson. Negotiation power of a large oil company is better with its business partners, ET Now report added citing ONGC.
HDFC Securities said the upstream and downstream companies can merge to reduce the impact of crude volatility. The newly formed oil major with strong balance sheet can also plan for big ticket global acquisition of oil fields to reduce import dependency, it added. However, the brokerage sees limited impact on stocks from this aspect while the details are awaited.
Both, Gail India – the gas exploration firm, and Indraprastha Gas – the distributor, fell despite the budget recommendations being positive for their costs and volumes. Gail India was trading down 1.38% at Rs 478.2, while IGL was down 0.55% at Rs 955.7.
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Jaitley has proposed reduction in basic custom duty on LNG (liquified natural gas) to 2% from 5%, which would result in lower raw material cost for petrochemical companies. The relative attractiveness of LNG will improve against liquid fuels, HDFC Securities said.
It added that Gail will doubly benefit as feed cost for petchem will reduce and lower LNG price will spur higher gas transmission volumes. All other gas players are also expected to benefit from increased volumes.