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The continuing rout of crude oil triggered the 855 point crash in the Sensex last Tuesday. The price of Brent oil, that day, touched the psychologically crucial level of $50 a barrel, down from $66 a month back and $115 in June last year. Fears of the fall being a sign of global deflation and causing an exodus by foreign investors took a toll.
The BSE Oil & Gas index was the worst hit, losing about 4.2 per cent. With good reason. The fortunes of pure play explorers such as Cairn India are directly linked with crude oil; the stock was down 3.5 per cent.
The public sector upstream companies ONGC and Oil India took a larger hit (5 - 6 per cent). This was due to worries that their product realisation (less than $50 a barrel) will be lower than the discounts ($56 a barrel) they have to give the public sector oil marketing companies, Indian Oil, HPCL and BPCL as part of the subsidy sharing mechanism.
Much of these losses were recouped on Friday on hopes that the Centre may exempt ONGC and Oil India from the subsidy burden for the balance of this fiscal year.
It is critical that the government comes out with a clear, transparent and fair policy on subsidy sharing, especially if it wants its planned divestments in these companies to get investor interest.
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