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Amidst the market mayhem over the past week, one set of usually-out-of-favour stocks found their fortunes looking up.
Public sector oil marketing companies, generally shunned by investors due to the perennial under-recovery overhang over them, outperformed the markets by a wide margin.
Indian Oil Corporation, Hindustan Petroleum Corporation, and Bharat Petroleum Corporation gained between 5.5 per cent and 8.5 per cent over the past six trading sessions, compared with the 8 per cent drop in the Sensex.
This strong show was on the back of a sharp drop in crude oil prices which alleviated to a good extent concerns over high under-recoveries for the downstream companies in fiscal 2012. Brent oil fell around 11 per cent over the past week and currently hovers around $104 a barrel. The benchmark had in fact dipped to below $100 levels, before staging a modest recovery.
Public sector oil producers – ONGC and Oil India – which share a portion of the subsidy burden through product discounts, also benefitted. This was based on expectations that notwithstanding an expected dip in gross realisations, a reduced under-recovery bill would lower subsidy burden of the upstream companies and consequently improve their net realisations.
Sources indicate that at present levels, net realisations for Oil India could be expected to improve to around $65 to $70 a barrel, as against $59.55 a barrel in the latest June quarter. Likewise, ONGC which realised $48.76 a barrel in the June quarter could also see an improvement in net realisations. Not surprisingly, Oil India and ONGC rallied 3.6 per cent and 4.7 per cent respectively since August 1.
The retreat in the price of crude oil, however spelt bad news for Cairn India. The company prices its Rajasthan fields' output at a 10-15 per cent discount to the price of Brent.
Apprehensions of lower realisations put further pressure on the stock, which is already under heavy weather due to the expected high burden arising from royalty sharing with ONGC in the Rajasthan fields. The stock lost almost 11 per cent over the past six sessions.
At a macro-level, a fall in the price of crude oil should help ease inflationary pressures in the country. Keeping with the fall in international crude oil prices, the rate at which Indian refiners source their oil fell 19 cents to $103.04 a barrel on Monday.
India's oil basket comprises Oman-Dubai sour grade and dated Brent sweet crude in a 67.6:32.4 ratio.
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