Refining and oil drilling shares hit the skids after government govt levies tax on crude production, fuel exports

Reuters

Shares of export focussed oil refiners were left in the lurch on Friday after the government imposed taxes on windfall gains they were making thanks to rising refining margins.

Media reports said the government imposed Rs 6 per litre special additional excise duty on export of air turbine fuels (ATFs) and diesel exports, while levying Rs 5/litre duty on petrol. The Centre also imposed additional taxes on local oil drillers at the rate of Rs 23,259 per tonne, CNBC Tv-18 said citing the Finance Ministry.

The decision led to a bloodbath in the petroleum block on Dalal Street. Reliance Industries, which has the largest refinery in the world in Jamnagar, slumped 7 per cent to trade at Rs 2,400 level. It single handedly took the market down as well. At the height of the selling, the stock eroded Rs 1.2 lakh crore of shareholders' wealth.

Mangalore Refinery and Chennai Petroleum were also down about 8 per cent each. Both stocks had gained recently thanks to the improving outlook on exports of petroleum products. ONGC and Vedanta that have oil rigs in India were down 5 per cent each.

Benchmark refining margins of petroleum refiners had reached close to $30 per barrel thanks to cheap flow of oil from Russia and high demand of petroleum products from Europe, which made it lucrative to export products.

This had also made many analysts go long on stocks like Reliance Industries, ONGC and Vedanta. For instance, earlier this week Bernstein came out with a report that had a stock target of Rs 3,360 for Reliance Industries. Average broker target on ONGC is Rs 200. Similarly, JP Morgan earlier this week said Vedanta had value thanks to stable crude oil and high demand and low supply for zinc.

Disclaimer: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.