India's state-run fuel retailers raised gasoline prices over the weekend, but they will continue to struggle with subsidy payments as the government is unlikely to fully pass on rising fuel costs to customers. Investors should therefore take advantage of recent gains and exit fuel retailers and upstream oil companies, analysts say.
- Associated Press
- India's state-run fuel retailers raised gasoline prices over the weekend.
India's state-owned fuel retailers sell some products, such as diesel and cooking fuel, to end-customers at subsidized prices. The subsidy burden arising from selling the products below market price is shared between the retailers, upstream companies and the government.
These subsidies have expanded as fuel prices have climbed. As of April 28, the average cost of crude for Indian refiners had risen to $121.90 a barrel from an average of just $73.54 a barrel in June last year. Television news channel CNBC TV-18, citing unnamed sources, Tuesday reported that the government was planning to increase the portion of fuel subsidies contributed by upstream companies to 38.5% from 33%. That report left upstream oil company stocks reeling Tuesday. Oil & Natural Gas Corp. Ltd. slumped 6.7% to 277.55 rupees ($6.15) and Oil India Ltd. shed 5.0% to end at 1,289.20 rupees. The 30-share benchmark Sensex was off 1.1%. If the government is trying to shift the subsidy burden from cash-strapped fuel retailers to fuel producers, as the CNBC report suggested, it would be a favorable [...]
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