Niraj Mansingka, VP of Institutional Equities from Research at Edelweiss Securities giving a stock specific view on the oil and gas sector in the wake of the upstream subsidy said, "Among the oil marketing companies and ONGC, I still prefer ONGC as a better bet."
The government increased the upstream oil companies' contribution toward fuel marketing firms' subsidy burden to 38.5% of its total subsidy in this fiscal, reports CNBC-TV18, quoting sources. Due to this move, upstream oil companies will have to bear Rs 30,000 crore in FY11.
Kirit Parikh, Member of Planning Commission from Government of India, in an interview with CNBC-TV18's Mitali Mukherjee and Udayan Mukherjee, gave views on whether the government should have a re-look on the subsidy sharing mechanism and will it impact most of the oil manufacturing companies (OMCs).
Parikh said, "I would expect some increase in diesel price. Because currently, there is large difference between petrol and diesel price and that creates much distorted oil market."
Niraj Mansingka, VP of Institutional Equities from Research at Edelweiss Securities giving a stock specific view on the oil and gas sector in the wake of the upstream subsidy said, "Among the oil marketing companies and ONGC, I still prefer ONGC as a better bet. This is because oil marketing companies will always be exposed to the vagaries and the earnings the moment the crude prices move upwards."
"But, overall in the oil and gas space I would still prefer Reliance because its reserves right now are not at question, " he added.
Below is a verbatim transcript of Parikh's and Mansingka's interview with CNBC-TV18. Also watch the accompanying video.
Q: What did you make of the petrol price hike and what do you expect the EGoM to deliver. Are you expecting a substantial diesel price hike next week?
Parikh: I am certainly quite pleased that petrol price is been increased. It would have been much better if the petrol price have been completely freed and not sort of freed within Indian characteristic as we are doing. The signals are given by the government and only then the OMCs raised petrol prices.
Its very difficult to say what the EGoM will decide on the diesel price. I would expect some increase in diesel price. Because currently there is large difference between petrol and diesel price and that creates much distorted oil market. It promotes more people to buy diesel cars. Diesel is more efficient engine and one would expect people to buy diesel car if they are driving a lot of miles.
Unfortunately, the cheaper diesel compared to petrol leads people to buy SUVs, diesel cars. In fact the average mileage that in India we get of diesel cars is lower than the average mileage of petrol cars give. There is no energy saving by going to diesel car.
Therefore there is a strong case for increase in diesel price in order to bridge the gap between the two as well as reducing government deficit or under recoveries of the oil marketing companies. On the one hand we say there is inflation, the Reserve Bank of India raised interest rates and on the other hand we keep subsidising diesel, it makes no sense.
Q: What have you made of indications though that the subsidy sharing mechanism maybe relooked at and companies like ONGC may bear a higher burden? Where does that leave the mechanism and the sharing ratio that was worked out by your report?
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