Mumbai: Shares of state-run Indian oil marketing companies (OMCs) extended their losses on Monday, after closing lower on Friday, the day the Union Budget was presented in Parliament.

OMCs comprise Bharat Petroleum Corp Ltd (BPCL), Hindustan Petroleum Corp Ltd (HPCL) and Indian Oil Corp Ltd (IOC). OMCs’ stocks are down 3.5-6.4%, with IOC registering the sharpest fall.

This is not without a reason though. There are some discomforting elements in the budget for OMCs. First, the government intends to look at the cumulative shareholding of the government and other government companies to arrive at the 51% minimum ownership limit. This provides the government a significantly higher headroom for disinvestment in energy PSUs going forward, analysts from Kotak Institutional Equities said in a report on 5 July. “This may act as a technical overhang on the stocks," added Kotak.

According to analysts, IOC remains the most vulnerable in the pack. IOC’s effective government stake, including stakes of other public sector units (PSUs), stands at 78.1%. For perspective: the government’s stake in IOC, excluding other PSU stakes, was 52.18% for the quarter ended 30 June, 2019.

Further, the government also increased the excise duty by 1 each on the sale of petrol and diesel. Companies have passed on this increase to the end consumer. According to IOC's website, prices of petrol and diesel have been increased since the budget. However, an increase in the excise duty could well limit the room for expansion in the auto fuel margins of OMCs.

According to JM Financial Institutional Securities Ltd, this has the potential to increase CNG use given that petrol/CNG spread will increase. “However, we expect the impact on HPCL, BPCL, IOC to be negligible, given the lack of pan-India CNG network and the (vast) scale of operations of OMCs," the company said in a report on 6 July.

Nonetheless, the increase in excise duties is expected to fetch the government around 28,000 crore. Even as government revenues increase, this also means that OMCs may not gain in terms of marketing margins in a lower crude oil price environment.

Note that these developments come at a time when investor confidence in OMCs is not its best. Refining margins are low and worse, outlook is expected to remain weak from a near-to-medium term perspective.