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Continuing oil sector reforms is the key

LiveMint logoLiveMint 18-05-2014 Pallavi Pengonda

Indian oil companies’ stocks have outperformed the benchmark Sensex this year. Shares of oil marketing companies—Bharat Petroleum Corp. Ltd, Hindustan Petroleum Corp. Ltd and Indian Oil Corp. Ltd—have gone up by at least 57% so far in 2014. Oil and Natural Gas Corp. Ltd (ONGC) and Reliance Industries Ltd (RIL) stocks have risen by 34% and 22%, respectively. Two main reasons for the outperformance include hopes of eventual diesel deregulation and the benefits of a gas price hike.

Many analysts say the gas price hike should now see the light of day with such a clear mandate in the elections. “There might be a slight tweaking in the pricing formula though,” said an analyst. The gas price hike will benefit RIL and ONGC. That apart, the government can also consider speeding up diesel de-regulation by taking frequent price increases. Diesel deregulation will reduce under-recoveries. Additionally, clarity on the subsidy sharing mechanism will be helpful.

The good news though is that as far as the diesel price hike is concerned, the government will just have to ensure the reforms continue. But the sharp run-up in the oil firms’ shares seems to indicate that most of the expected gains are in the price as of now.

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