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The BSE Oil and Gas index is up nearly 32 per cent since the 2013 Budget.
Most of the gains have been registered after September 2013. The monthly 50 paise hike in diesel price since January 2013 – has been the primary driver for the rally. The regular diesel price hikes reduced under-recoveries incurred on the fuel by the State-run oil marketing companies (OMCs) – Indian Oil, Hindustan Petroleum Corp and Bharat Petroleum Corp – by almost a third last year.
Total under-recoveries fell more than 13 per cent in 2013-14. Lower under-recoveries also help Oil and Natural Gas Corporation (ONGC) and Oil India and gas transmitter GAIL India, which bear a chunk of the burden. Under-recovery on diesel is now less than ₹2 a litre – this can be neutralised in less than four months.
Also, the Government could streamline subsidies on cooking gas cylinders and kerosene. But the crisis in Iraq could be a spoiler. The other big sentiment booster was the proposed doubling of the price of domestic natural gas , from $4.2 a unit (gas is measured in million British thermal unit). This will benefit mainly ONGC, Oil India and Reliance Industries. Cairn India and Essar Oil, which have also started gas production, will gain, too. A higher gas price which can boost gas output also bodes well for gas transmiters GAIL and Gujarat State Petronet, and city gas distributors Indraprastha Gas and Gujarat Gas.
The stocks of refiners Mangalore Refinery and Petrochemicals and Essar Oil have gained strongly, with the companies’ operating performance improving, courtesy upgraded and expanded refineries. Gas importer Petronet LNG, under pressure due to capacity under-utilisation at its Kochi terminal, has also gained on the bourses with spot gas import prices falling in recent months.
A continuation of the reforms process, in pricing, exploration and taxation , and clarity on gas pricing are likely to decide the future course for these stocks.
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