OMC stocks: Why BPCL, HPCL, IOC shares fell after petrol, diesel price hikes

OMC stocks: Shares of Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation Ltd (IOC) fell on Friday, as petrol and diesel price hikes of Rs 3 each failed to cheer investors, who were anticipating higher hikes as the three oil marketing companies (OMCs) incur huge losses on marketing of auto fuel and LPG, pegged at around Rs 30,000 crore monthly. BPCL fell 2.91 per cent to Rs 286.50. HPCL was down 2.4 per cent at Rs 368.05. IOC shares declined 1.73 per cent to Rs 137.83.

In a note on May 12, Antique Stock Broking said the government officials that it met suggested only moderate price hike in petroleum products, as every 10 per cent increase in crude oil prices, if passed through to consumers, leads to 50 basis points higher inflation and 15 basis points lower growth.

But the Street was probably expecting higher fuel price hikes given the under-recovering. Nomura had on Thursday cited media reports as suggesting that a Rs 5 per litre increase was likely. It suggested fuel price hikes were imminent. 

OMC under-recoveries

Emkay Global pegged under-recoveries at Rs 17-18 per litre at current crude levels, even after the excise cuts of Rs 10 per litre effected on March 27, leading to quarterly OMC losses of Rs 57,000-58,000 crore. 
Nomura estimated a Rs 15-20 per litre increase is needed for OMCs to stop incurring losses. Petrol and diesel have a 4.8 per cent weighting in India’s CPI basket and a 5 per cent increase could add around 25-30 basis points to headline inflation, Nomura had suggested. 

In Delhi, petrol prices jumped to Rs 97.77 per litre from Rs 94.77 earlier. Diesel rose from Rs 87.67 to Rs 90.67. Across other metros, the increases ranged between Rs 2.83 and Rs 3.29 per litre, with petrol now priced at Rs 108.74 in Kolkata, Rs 106.68 in Mumbai and Rs 103.67 in Chennai. In the case of diesel, prices in Kolkata now stands at Rs 95.13 per litre, Mumbai at Rs 93.14 and Chennai at Rs 95.25.