The steep hike in diesel price and the cap on the supply of subsidised LPG appears to have done a world of good to the Oil and Gas index on the BSE with all the stocks making gains in the morning trade today.

But what was more surprising was that the stocks of auto makers, who earn a significant part of their income from the sale of diesel vehicles - from cars to HCVs - also joined the winners' bandwagon and made handsome gains, putting fears of buyers' resistance to diesel powered vehicles at rest.

The big gainers were not only the oil marketing companies but those in the oil exploration as well.

On the BSE, BPCL was up by Rs 13 to Rs 367.55, HPCL gained Rs 7.90 to Rs 316 and IOC jumped Rs 7.80 to Rs 262.20.

The major gainers in the oil/gas exploration space were Oil India (up Rs 5.35 to Rs 487.15), ONGC (gained Rs 4.35 at Rs 287.40), Cairn India (increased Rs 9.45 at Rs 350.30), and Reliance Industries, which jumped by Rs 11.95 at Rs 810.20.

In the gas sector, GAIL spurted Rs 17.85 to Rs 386.95. Petronet LNG made marginal gains.

Any fear that rise in diesel prices may dampen the demand for diesel powered vehicles not only in the passenger car/SUV segment but in LCV/HCV space too may be a little off the track, if the market behaviour is any indication.

Tata Motors, which makes diesel powered vehicles from cars to LCVs to HCVs jumped by Rs 7.60 to Rs 267 in the NSE. Maruti was the biggest gainer in terms of value, up by Rs 24.85 at Rs 1,235. M&M, another major player in the diesel vehicle sector, gained Rs 10.25 at Rs 766 and Ashok Leyland, a big player in the HCVs that is also into LCV sector, was up by 40 paise to Rs 21.50.

The fact that the price difference between diesel and petrol is significant still may be a reason for the optimism. But the fact that there could be relief elsewhere like reduction in interest rates or that inflation might fall may also have weighed in with the investors.

In hindsight, one could also say that the US Federal Reserve's booster dose to aid the economic recovery of that country could not have come at a more fortuitous moment for the Indian government because any negative fallout of its decision to raise diesel prices on the market was drowned in the positive impact made by the US Fed's move! With the Sensex up by 370 points to 18,391 points, the market brouhaha may last for a while!.

(This article was published on September 14, 2012)
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