Gas prices hiked 40%; experts fear higher prices may hit Centre's subsidy purse

The government on Friday hiked the natural gas prices by a steep 40 percent to record levels in sync with the strong energy rates globally.

The rate paid for gas produced from old fields, which accounts for about two-thirds of all gas produced in the country, was hiked to $8.57 per million British thermal units from $6.1, as per an order from the oil ministry’s Petroleum Planning and Analysis Cell.

Kirit Parikh, chairman at Integrated Research and Action for Development, told CNBC TV18 that higher gas APM price will increase the amount of subsidy offered by the government to farmers.

This, in turn, will make the government one of the stakeholders in terms of the effect on its budget due to rise in gas prices.

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Experts also said that APN gas is a small fraction of the total gas consumed in India and its price hike is market determined, and depends on the cost of imports.

"I think investors would need to take a slightly holistic approach, see the margins on annualized basis, let the (gas) companies balance out the equation between price and volume, which eventually will lead to a steady state earnings growth," said Harshvardhan Dole, VP-Institutional Equities at IIFL, in an interview with CNBC TV8.

The analyst also said that if there is a likely market correction in gas stock prices, investors may take the opportunity to buy the respective stocks.

"In case there is a sharp correction in the stock prices...it should be taken as a good entry point," he added.