Oil stocks on Thursday rose by as much as 4 per cent following the oil ministry's proposal to raise diesel prices by Rs 3-4.50 per litre.
On diesel, the ministry has proposed a Rs 3-4.50 per litre hike in one go or in monthly instalments of Re 1 or Rs 1.50 per litre. From April, it wanted Re 1 a litre increase every month till such time that the current loss of Rs 10.16 is wiped out.
Analysts said stocks of oil companies were in demand because a hike in fuel prices that would reduce their subsidy burden and improve revenues.
Shares of Indian Oil (IOC) gained 3.59 per cent to their 52-week high of Rs 297.95. Similarly, Hindustan Petroleum (HPCL) gained 2.38 per cent at Rs 345.30, while Bharat Petroleum's (BPCL) scrip moved up by 2.97 per cent to Rs 395.85.
Oil and Natural Gas Corporation (ONGC), too, surged 2.06 per cent.
Led by the gains in these stocks, the BSE oil and gas index was trading 0.62 per cent up at 8,950.51 in the late morning trade.
Rally in these stocks was contrary to an overall sluggish equity market, where the BSE Sensex was trading 33.92 points down at 19,632.67.
Meanwhile, the chairman of Prime Minister's Economic Advisory Council C Rangarajan at a seminar in New Delhi on Thursday said diesel prices need to be raised for fiscal consolidation.
"Domestic diesel prices are not in tune with the international prices of crude. Action will have to be taken to correct the prices of diesel for attaining fiscal consolidation," he said at a seminar by Indian Institute of Foreign Trade here.
Asked when the next diesel price hike was expected, he said that it depended on the government.
"It is necessary to raise the diesel prices which may also help in bringing down the headline inflation," Rangarajan observed.
With inputs from PTI