Oil shares help Sensex finish above 20,000; midcaps slack

Buyers scrambled for shares of state-owned oil companies even as analysts were divided on the implications of Thursday’s Cabinet decision allowing oil companies to hike diesel prices in small measures.

The Sensex closed at 20039.04, up 75.01 points and the Nifty at 6064.40, up  25.20 points.

OIL India, ONGC, BPCL and Indian Oil shares climbed 7-10 percent, as a few broking houses upgraded the stocks to a buy, betting on a improvement in their profitability.

But others like Nomura remained unconvinced.

"Even as fuel price hikes are positive and reduce under-recoveries, we highlight that these may not change the bottom lines of oil PSUs, which would continue to be determined via ad-hoc subsidy sharing mechanism,” said a note by the brokerage.

"OMCs are compensated for their entire under-recoveries, and thus reduction in under-recoveries does not impact OMC’s profitability.  Also, we think given  weak fiscal situation, GoI might usurp all the benefits of any price increases, by reducing cash compensation to OMCs. Thus, subsidies payouts by upstream companies to OMCs may also not be reduced,” the note added.

Other brokerages like Kotak Securities and Ambit were more hopeful about the prospects for state-owned oil companies.

Overall, market breadth was weak with losers outnumbering gainers 1305:954. The BSE Midcap and Smallcap indices closed slightly lower; an indication that the market may find it tough to sustain recent gains.

While the recent moves on hiking railway fares and fuel prices has enthused the market, valuations are already reflecting much of the positives, say brokers. Unless macro-indicators start showing a clear recovery, investors would be wary of buying at these levels, they said.

In major earnings today, ITC and HDFC Bank reported strong growth numbers. Wipro’s third quarter numbers were slightly ahead of analyst estimates, but the mute revenue guidance for the March quarter prompted investors to book profits. Wipro shares ended around 8 percent lower. Overall, IT shares underperformed as analysts feel they are fairly priced for the time being after the recent run up.

Other than oil & gas shares, the key gainers were from the power and realty sectors. Metal shares started off on a firm note, but gave up much of the gains.