Mumbai: Goldman Sachs Group Inc. and Citigroup Global Markets Inc. downgraded the stocks of state-run fuel retailers after the government on Thursday asked them to subsidise retail petrol and diesel prices. Citigroup downgraded Bharat Petroleum Corp Ltd (BPCL), Hindustan Petroleum Corp Ltd (HPCL) and Indian Oil Corp Ltd (IOC) to sell, while Goldman Sachs lowered the first two companies to sell, after the government cut the excise duty on petrol and diesel by 1.5 a litre and asked state-run oil marketing companies to absorb another 1/litre on the sale of these fuels.

The announcement came just before the market closed on Thursday, driving refiners’ stocks down. The S&P BSE Energy Index tumbled 6.7%, the most since August 2015, while each of the three state-run refiners closed more than 10% lower.

HPCL, BPCL and IOC shares came under heavy selling pressure today also, falling as much as 29%. HPCL slumped as much as 25% to 165.45 per share on BSE, Indian Oil fell as much as 24.9% to 105.65 and BPCL dived 28.9% to 239.

The imposition of price controls is an “unequivocal negative" that underscores “high political risk" associated with state-owned enterprises, Citigroup’s analyst Saurabh Handa wrote in a note.

The move would reduce pretax profit of state-run oil marketing companies by a combined 4,500 crore in the year ending March 31, according to people with knowledge of the matter. On an annualized basis profit before tax may drop by about 9,000 crore based on current sales volumes, they said, asking not to be identified as they aren’t authorised to speak to the media.

“Confidence in forward earnings and returns will become very low" with the imposition of price controls amid rising oil prices and elections next year, Goldman analysts including Nikhil Bhandari wrote in a note.

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