Over fuel price cut, Morgan Stanley turns cautious on HPCL & BPCL

After the central government reduced excise duty on fuel by Rs 1.50 a litre and also asked oil companies to reduce their profit by Re 1, an American multinational investment bank Morgan Stanley said, if the prices of fuel continue to slash even after 2019 general election, the development will have a material earning impact.

Morgan Stanley also said it’s turning cautious of the oil and gas majors HPCL and BPCL. The lack of policy clarity also adds to the challenge.

The firm has downgraded HPCL and BPCL to under-weight and IOC to equal-weight. As HPCL shares were reported trading up by 2.2% on Monday morning at Rs 168 on NSE. BPCL shares shed 2.2%. Morgan Stanley quoted by Financial Express as saying, “If oil prices fall, this could see OMCs recover the Re 1 loss over time.”

Besides Morgan Stanley, there are several brokerages firms have downgraded oil marketing companies (OMCs) following the government’s decision to cut Rs 1.5 excise duty on fuel last week. “Government’s move will bring down the EPS by 23 per cent-46 per cent. It also raised fears of a return of subsidy regime if crude spikes further in upcoming elections. ONGC and Gail may also be impacted but these already build-in risk,” CLSA said in a note.

Shares of state-run oil and gas majors plunged to multi-year lows on Friday, reacting to the move. The shares of oil major BPCL sank over 25% on Friday to hit a 30-month low of Rs 238.55Over Center’s fuel price cut. Shares of India’s largest commercial enterprise IOC also down by more than 20% intra-day to hit a 2-year low of Rs 105.

Also read: Sensex dips more than 250 points, Nifty50 below 10,250