This slump in oil price means lower subsidies on fuel sales for Indian oil companies, also increases optimism that team Modi can achieve a tough fiscal deficit target of 4.1 percent.
The News International Team
Brent crude price, the European benchmark recently hit its 27-month low of USD 90 a barrel on oversupply concerns and is currently hovering at USD 92.20 per barrel.
According to a recent Business Standard report, global crude oil price is likely to remain low and is unlikely to touch USD 110 a barrel anytime. It says that a slew of global factors lead to this bearish view on the commodity for months.
So, if that is the case then this is a reason for us to cheer. And why not, crude is the key culprit of India’s wide import bill as the country imports 75 percent of its oil requirements. This slump in oil price means lower subsidies on fuel sales for Indian oil companies, also increases optimism that team Modi can achieve a tough fiscal deficit target of 4.1 percent.
In its maiden Budget in July, the new government had estimated this year’s fuel subsidy to be at Rs 63,000 crore assuming average crude oil prices of USD 105-110 a barrel, but the current decline oil price will pull this further downward.
With this, oil marketing companies (OMCs) are likely to report consecutive quarterly profits in the second half of FY15.
Broking firm UBS prefers betting on upstream oil companies given near-term operational catalysts, better balance sheets, ROEs and their relatively attractive valuations.
Oil and Natural Gas Corporation ( ONGC ) and GAIL are Religare’s top bets. Among OMCs, while it likes both BPCL and HPCL , it prefers the latter.
Meanwhile, Macquarie maintains its outperform rating on HPCL with an increased target of Rs 506.
On the macro front, it may also the government to de-regulate diesel price once state elections are out of the way. Apart from the shrinking import bill, inflation and current account deficit (CAD) will also see some cooling off if global crude price stay low going ahead.