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Low expectations from oil and gas investors

Low expectations from oil and gas investors
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First Published: Wed, Feb 24 2010. 12 36 AM IST

Updated: Wed, Feb 24 2010. 12 36 AM IST
The share prices of oil marketeers have been flat in the run-up to the Budget, in line with the performance of the broad market. There’s hardly any excitement about the government-appointed Kirit Parikh committee’s recommendations made earlier this month to free pricing of auto fuels and sharply increase prices of cooking fuels.
The consensus view on the street is that the full implementation of the committee’s recommendations is difficult, especially considering the politically sensitive issue of deregulation of diesel and cooking fuel prices.
But while no one is expecting full implementation, the fact that share prices of oil marketing companies haven’t risen at all indicates that expectations on even a partial implementation of the recommendations are quite low. According to a sector analyst, current share prices suggest that the downside for these stocks is limited and there could be an upside if the finance minister talks of plans to implement some part of the Parikh committee report.
Graphic: Yogesh Kumar / Mint
Of course, it’s possible that the report is just mentioned in passing and no concrete steps to implement any of the recommendations are mentioned in the Budget speech. After all, oil pricing is a politically sensitive issue. Besides, inflation too is running high and it may not be seen as the right time to announce price hikes.
And then, as another analyst points out, there doesn’t seem to be a consensus yet within the government about deregulating fuel prices, making it far-fetched to expect any concrete proposals in the Budget speech. But then, share prices are already factoring this in, leaving room for a positive surprise if some of the committee’s proposals are implemented or even if a road map for implementation is discussed.
There is also an expectation that the government may change the current policy of keeping fuel subsidy off the Budget to be seen as more transparent.
This will remove uncertainty for oil companies, since the off-budget treatment of the subsidy results in a lack of clarity on what the exact reimbursement from the government will be. Even this fiscal year, it’s still not clear if the government will be bearing the entire subsidy burden on cooking fuels.
Write to us at marktomarket@livemint.com
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First Published: Wed, Feb 24 2010. 12 36 AM IST