Mumbai: Shares of Indian explorers and oil refiners surged on Friday after the oil minister said a proposal to allow firms set retail fuel prices based on market rates would be sent to cabinet within six weeks.
Currently, the government sets prices for retail fuel such as petrol and diesel below actual prices, and partially subsidizes state-run marketing firms for the difference.
The oil and gas sector index, which includes Reliance Industries and state-run explorer ONGC, was up 4.6% by 01:29 pm, outperforming the broader 30-share BSE index that was up 2.8%.
Reliance Industries, India’s largest-listed firm, was up 3% at Rs2,286.50, while ONGC, India’s second-largest listed firm, had gained 5.6% to Rs1,194.
Financial markets have been expecting the government to move on reforms such as freeing up fuel prices after it won a strong mandate at national elections.
However, analysts were wary of expecting too much from the proposed move, saying such proposals had come to naught before.
“It seems difficult for the regulation to go through, as it is a sensitive issue. They have made similar noises in the past,” Hitesh Agrawal, head of research at Angel Stock Broking, said.
The scale of any deregulation would determine whether companies will benefit from it, he said.
“If the government does not deregulate prices of household oil products, then it is not going to help. And I don’t think they can touch cooking oil and kerosene, because it is a political issue.”
The cost of subsidizing fuel prices has added to a widening budget deficit, which is seen as limiting the government’s ability to deliver stimulus spending top boost growth.
“You cannot sit back and say let’s not decontrol oil prices because oil prices may go up,” prominent Indian investor Rakesh Jhunjhunwala told Reuters earlier this week.