Shares of oil and gas companies were the best performers on the bourses today, after the oil ministry proposed minimising fuel subsidies over the next two years by increasing diesel and kerosene prices. But, share gains were capped as investors remain sceptical on the government's ability to implement the price increases in the run-up to the general elections in 2014.
BSE's oil and gas index rose 2.4 per cent, while the Sensex gained 0.6 per cent. Among oil marketing companies, HPCL rose 4.2 per cent to Rs 292.90, BPCL gained 2.2 per cent to Rs 353 and IOC rose three per cent to Rs 268.80.
The oil ministry proposed raising prices of diesel by Rs 10 a litre over the next 10 months and of kerosene by Rs 10 a litre over the next two years.
"If the government is really able to walk the talk, it will be certainly the biggest positive for the sector. But, the fact that the stocks have not moved much in response to the announcement shows investors are not convinced," said Anand Shah, chief investment officer, BNP Paribas Asset Management India. "One needs to keep in mind that 2014 is an election year and there will be a lot of stiff political opposition"
|SETTING ON FIRE |
BSE price in Rs
|Indian Oil Corp||268.80||3.03||5.93|
|BSE Oil & Gas||8510.52||2.38||13.03|
|&Change over previous close; Filter by BSE Oil & Gas stocks |
Compiled by BS Research Bureau
Barring BPCL, shares of all oil and gas companies have underperformed the Sensex so far in 2012. The steep diesel price increase in September helped these shares post gains for the year but the absence of more such actions by the government has limited the upsides. State-owned oil companies currently sell diesel at a loss of Rs 9.28 per litre. If the government increases prices over the next 10 months, it will erase all the losses incurred by these companies towards subsidies.
“There are doubts whether the proposal will go through. Though, it’s a positive move as it will help contain the subsidy burden but how far they (government) can actually go ahead with this measure is yet to be seen and the outlook will depend on that only,” said Kaushik Dani, equity head at Peerless Mutual Fund.
For those who believe that the government will actually push through these fuel price increases, this may be a good time to buy these shares as most of them are cheaply valued, said fund managers.
“My sense is that within two months, possibly in February, the fuel hike will happen. And in that case, the entire sector could see a re-rating as many of the stocks are currently trading below their book values,” said Gopal Agrawal, chief investment officer of Mirae Asset Management.