Summary of this article
Indian retail fuel prices hiked amid global crude volatility.
Shares of oil marketing companies rallied as underwriting losses start easing.
Dropping global crude prices boosted logistics and automotive shares.
State-owned oil marketing companies (OMCs) announced a hike in retail fuel prices on May 25. The price of petrol has been increased by up to Rs 2.61 per litre, and for diesel, prices have been increased by up to Rs 2.71 per litre across major metropolitan cities.
Notably, this is the fourth consecutive upward revision in less than two weeks. The uptick in price occurred even as international Brent crude oil prices slipped after having surged amid the ongoing conflict in West Asia.
In the early hours of the trading session, the fuel hike caused a spike in volatility and impacted stocks of companies across sectors. Here’s a look at how fuel-sensitive stocks are trading today:
ONGC and Oil India Share Price Declines
Following the price hike, shares of upstream oil sector companies such as Oil India and ONGC witnessed declines. Typically, a domestic fuel price hike acts as a tailwind for companies like ONGC and OIL as fuel retailers recover their costs, which in turn protects the upstream companies from being forced by the government to fund fuel subsidies. However, in today’s trade, Oil India shares dipped over 2 per cent to an early low of Rs 486.95 apiece on the NSE.
On the other hand, ONGC shares dipped over 1 per cent to hit an early low of Rs 285.3 apiece on the NSE. The dip came as the underlying price of crude remained low, slipping below the $100 per barrel mark. At the time of writing, WTI Crude Futures traded around $91.07 per barrel, down by 5.76 per cent, and Brent Crude Futures traded around $97.96, down by 5.39 per cent.
BPCL, HPCL and IOCL Shares Rally
IOCL (Indian Oil Corporation), BPCL (Bharat Petroleum), HPCL (Hindustan Petroleum), and Reliance Industries shares gained post the announcement of the fuel hike. HPCL shares surged nearly 6 per cent to an early high of Rs 412.55 apiece on the NSE. BPCL and IOCL shares also surged 4 per cent each to early highs of Rs 309 apiece and Rs 145.30 apiece on the NSE. Shares of Reliance Industries also gained over 1 per cent to trade at Rs 1371.1 apiece.
OMC stocks are gaining in the session today as the fourth fuel price hike is expected to have helped them reduce underwriting losses. The rally in OMC stocks was further aided by a drop in global crude oil prices, which in turn decreased their input costs. Notably, a retail price hike aids in passing on part of the mounting burden to the consumer. However, reports indicate OMCs have borne heavy daily losses as they have been absorbing a major part of the crude oil price hike.
Logistics Stocks Inch Higher
Shares of Delhivery, VRL Logistics, and Blue Dart Express jumped despite the price hike in petrol and diesel rates. Shares of Delhivery, VRL Logistics, and Blue Dart Express inched higher by 2.47 per cent, 1.48 per cent, and 2.2 per cent, respectively, on the NSE.
Notably, while commercial logistics fleets run primarily on diesel, a retail price rise would have resulted in a situation wherein they would have to absorb the higher cost or pass it down via surcharges. However, due to the decline in crude oil prices, it is likely that investors are now betting on fuel costs quickly cooling off in tandem with global crude despite the price hike announced today.
Tata Motors, Eicher Motors Gain
While sustained hikes in retail petrol and diesel rates tend to alter consumer sentiment by making conventional internal combustion engine (ICE) vehicles more expensive to own, automotive stocks experienced an uptick in today’s trade. Shares of Eicher Motors, Ashok Leyland, and Tata Motors Passenger Vehicles gained 5.29 per cent, 3.38 per cent, and 2.70 per cent, respectively. The gains came as the dip in crude oil is expected to ease manufacturing expenses, as crude oil is used extensively by the industry in its manufacturing process—particularly in plastics, rubber, synthetic components, and factory logistics.
E-commerce Stocks
Shares of Eternal and Swiggy, which employ fleets of delivery partners, also witnessed an uptick. While a hike in retail fuel prices tends to put pressure on businesses as companies struggle to manage rider payouts and distance-based incentives, it is likely that investors have priced in the decline in crude prices because the risk of long-term fuel inflation seems to be fading. Shares of Swiggy inched higher by nearly 2 per cent, while Eternal shares edged up more than 3 per cent on the NSE.
What Should Investors Do?
Amid the rally in OMC stocks, investors are likely to consider investing in them. However, Dhaval Popat, energy analyst at Choice Institutional Equities, told Outlook Money that while the current macro backdrop of declining oil prices lends support to OMCs, caution is still warranted.
“In our opinion, in the current macro backdrop where oil prices are declining, it does lend support to the OMCs. However, the prices have already increased closer to the fair valuations, so caution is advised,” Popat said.
Popat added that other factors, such as diesel prices and ATF prices, are likely to remain higher for longer. This, in turn, impacts fuel-sensitive sectors. He added that investors can also consider investing in pure-play refiners.
“From a long-term perspective, as we expect diesel and ATF cracks to remain higher for longer, investors should consider pure-play refiners over OMCs,” Popat said.
