Shares of state-run oil and gas majors plunged to multi-year lows after the government yesterday announced major fuel price cuts, in order to provide relief to the common many from rising prices. The shares of oil major BPCL plunged by more than 25% intra-day to hit a 30-month low of Rs 238.55. Shares of India’s largest commercial enterprise IOC plunged by more than 20% intra-day to hit a 2-year low of Rs 105. Hindustan Petroleum Corporation Limited shares plunged by more than 20% on Friday morning to hit an intraday low of Rs 164 on NSE this morning.
Notably, many brokerages have downgraded oil marketing companies (OMCs) after the government on Thursday announced a Rs 2.50 per litre cut in petrol and diesel prices as it reduced excise duty by Rs 1.50 a litre and asked oil companies to absorb a Re 1 slash. “Government’s move will bring down the EPS by 23 per cent-46 per cent. It also raised fears of return of subsidy regime if crude spikes further in upcoming elections. ONGC and Gail may also be impacted but these already build-in risk,” CLSA said in a note.
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The global brokerage firm has cut shares price target on IOC to Rs 105, as compared to Rs 155 earlier. It has also cut the share price target for BPCL to Rs 240, from 390 earlier; and Rs 150 from 290 earlier for HPCL. “The announcement marks U-turn from deregulation and raises possibility of return to subsidy regime. The cut in marketing margins would result in 24-28 per cent cut in earnings per share (EPS),” Motilal Oswal said in a report.
Yesterday, finance minister Arun Jaitley told reporters that the government has decided to provide the relief against the backdrop of surging crude oil prices, which was at a four-year high of $86 a barrel. He said that the government was confident of meeting its fiscal deficit target of 3.3% even after providing the tax relief due to higher-than-expected direct tax collection.