HPCL, BPCL, Indian Oil Shares Fall 1-2% After LPG Price Cut; Here's Why

Share prices of oil marketing companies (OMCs) dropped on Wednesday, making them top underperformers in the oil & gas segment. HPCL, Indian Oil and BPCL have declined in the range of 1% to over 2%. The performance comes after Prime Minister Narendra Modi in a bold step reduced the LPG cylinder price by Rs 200 per cylinder across all LPG consumers. Broadly, oil and gas stocks are also trading lower amidst a bullish market.

At the time of writing, the BSE Oil & Gas index traded at 18,765.20, lower by 28.89 points or 0.15%. Hindustan Petroleum Corporation Of India (HPCL) was the top laggard by tumbling 2.03% to trade at Rs 258.60 apiece.

HPCL was followed by its peers BPCL who traded at Rs 351.85 apiece down by 1.4%, while Indian Oil Corp share dipped by nearly a per cent to trade at Rs 91 piece.

Other stocks that were in red are Adani Total Gas, Petronet LNG and Gujarat Gas.

To abate the impact of stubbornly high inflation in India, the government led by PM Modi on Tuesday announced a substantial reduction in the price of cooking gas.

With effect from August 30, 2023, the price of a 14.2 Kg LPG cylinder trimmed by 200 in all markets across the country. This was also announced as a gift on the occasion of Raksha Bandhan.

In Delhi for instance, the decision will bring down the cost of a 14.2 Kg cylinder from the existing Rs 1103 per cylinder to a more affordable Rs 903 per cylinder.

Modi, "This is a gift to crores of my sisters of the country on the occasion of Raksha Bandhan. Our Government will always do everything possible that improves people's quality of life and benefits the poor and middle class."

It needs to be noted that the reduction is in addition to the existing targeted subsidy of Rs 200 per cylinder to PMUY households, which will continue. For PMUY households, therefore, the effective price in Delhi after this reduction will be Rs 703 per cylinder.

There are more than 31 Cr domestic LPG consumers in the country including 9.6 Cr PMUY beneficiary families and this reduction will help all LPG consumers in the country.

Further, to clear pending PMUY applications and to provide deposit-free LPG connections to all eligible households, the government announced that it will shortly start distribution of PMUY connections to 75 lacs women from poor households who do not have an LPG connection. This will increase the total number of beneficiaries under PMUY from 9.6 crore to 10.35 crore.

Hardeep Singh Puri, Minister of Petroleum and Natural Gas, expressed his happiness with the decision, stating, "We understand the challenges faced by households in managing their budgets. The reduction in cooking gas prices is aimed at providing direct relief to families and individuals, while also supporting the Government's larger goal of ensuring affordable access to essential items."

The government expects the reduction in cooking gas prices to have a positive impact on the cost of living for a wide spectrum of society. It said, "Government's proactive step is projected to save significant expenses for households, making an appreciable contribution to the disposable income of citizens."

Wil LPG price cut impact OMCs?

Manish Chowdhury, Head of Research, StoxBox said, despite the weak global macroeconomic conditions and a tighter monetary policy at home, India is likely to show resilience and clock an 8.1% annual growth in the first quarter, higher than the Monetary Policy Committee's forecast of 8% growth. The robust domestic demand, improved capital expenditure by both central and state governments and buoyant services activity is likely to contribute to the strong growth. With the effect of El Nino being slowly visible on the overall rainfall pattern and expectations of a slower investment activity by the government in the second half of this fiscal year due to impending general elections in 2024, it would be interesting to see if the economy can clock a projected 6.5% growth for this fiscal year.

He added, while it is too early to predict the impact of price reductions of LPG cylinder on OMCs as it would depend on the consumption pattern as well as international prices, we do not expect a major hit on the performance of OMCs. This higher headroom enjoyed by OMC companies on LPG offers some cushion as compared to other petroleum products. Moreover, with general elections due next year and inflation remaining above the RBI's comfort zone, we would not be surprised to see a cut in petrol and diesel prices in the next few months. However, some impact from the reduction in prices would be absorbed by the FY24 Union Budget announcement which had set aside Rs. 30,000 crores as capital support to state-run oil refining companies.

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