Oil companies hit new lows

All the five losers on the BSE currently are oil companies – upstream as well as down stream. Oil Marketing companies (OMCs) lead the falling pack, with HPCL at the helm, followed by BPCL and IOC. Close on their heels are ONGC and Oil India. All have hit a new 52-week low today.

In a bid to bring some relief to the people of India and to soothe disgruntled voices, the Govt finally blnked yesterday and cut excise on petrol and diesel by Rs 1.50. The Govt also stated that OMCs will have to absorb Re 1 cut and this is the reason why these stocks have been hitting new lows since yesterday.

The market is worried that if the oil prices continue to rise and rupee falls further, these oil companies might be asked to take on a higher burden.

Following this move, it is projected that OMCs revenues and pre-tax profits will fall by Rs 7,000 crore.

While OMCs will continue to calculate daily fuel prices based on the trade price parity (TPP), this is the first time since price deregulation that they have been asked to absorb prices. The fear is that these companies will be forced to go back to regulation and subsidy regime.