ONGC Rallies on Expectation of Lower Subsidy Outgo: Mumbai Mover
State-run Oil and Natural Gas Corp. Ltd. rose for a seventh day to the highest in almost 11 months on expectations the government may increase diesel and cooking gas prices, reducing the explorer’s subsidy obligations.
ONGC (ONGC) rose as much as 3.6 percent to 302.85 rupees, the highest intraday price since Feb. 22, in Mumbai trading, making it the second-highest gainer on the benchmark Sensex today. The federal oil ministry has proposed an increase of as much as 4.50 rupees a liter on diesel and 100 rupees ($1.8) for a cylinder of cooking gas, the Press Trust of India reported yesterday.
Energy, including oil and coal, is underpriced in India and the country must consider a phased increase in prices to meet its growth targets, Prime Minister Manmohan Singh said in a speech on Jan. 7. The government orders ONGC and smaller rival Oil India Ltd. (OINL) to sell crude oil to refiners including Indian Oil Corp. (IOCL) and Bharat Petroleum Corp. at a discount to partly compensate them for fuel sales below cost.
“There is a great expectation that the government is determined to do away with subsidies, which could potentially double ONGC’s selling price for crude oil,” said Deven Choksey, managing director at K.R. Choksey Shares & Securities Pvt. in Mumbai. “The consequential problems of subsidies, such as inflation and ratings downgrades, are weighing on the country’s growth.”
ONGC’s share of subsidy may increase to $12 billion in the financial year to March from $10 billion last year, according to Moody’s Investors Service. India may face a downgrade in the next 12 months to 24 months as the government is likely to miss its fiscal deficit target, Andrew Colquhoun, Hong Kong-based head of Asia-Pacific sovereigns at Fitch Ratings, said Jan. 8.
The company reported its biggest profit decline in almost four years after it gave a $63.05 discount on every barrel of crude oil it sold to Indian state-run refiners in the quarter ended Sept. 30, according to a Nov. 8 statement. Its selling price of $46.80 a barrel in the three months was 43 percent lower than a year earlier.
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