OMC stocks in red after windfall tax cut; Adani Total dips 4%, BPCL, Indian Oil tumble. What to expect?
2 min read . Updated: 05 Apr 2023, 02:58 PM IST
Premium- Sumit Singhania, Partner, Deloitte India said, withdrawal of windfall tax, except the reduced levy on diesel, is certainly a cheer for oil producing companies.
The majority of the oil market companies' (OMCs) stocks are in the red on Wednesday after the Centre slashed windfall tax gains. Adani Total Gas witnessed a sharp selloff, followed by BPCL, ONGC, and Indian Oil. Heavyweight Reliance Industries (RIL) is also under pressure. It is being said that the withdrawal of windfall tax, except the reduced levy on diesel is a positive for OMCs.
At the time of writing, BSE Oil & Gas traded at 17,205.65 lower by 74.35 points or 0.43%. Adani Total Gas took the most beating, slumping by over 4.3%. BPCL and RIL were down by 0.8% and 0.5%. ONGC, Indian Oil, and GAIL dipped marginally.
On the other hand, Indraprastha Gas was the top gainer in the basket, soaring by over 4.8%. Petronet LNG surged over 0.6%. Gujarat Gass and HPCL were in green with marginal upside.
With effect from April 4th, the windfall gains tax on domestic crude oil has been trimmed to nil from ₹3,500 per tonne, while halving the levy to 50 paise per litre on diesel exports with immediate effect. Also, the levies on the export of aviation turbine fuel (ATF) and petrol continue to be nil. Notably, it would be the 18th fortnightly revision of the duties.
Last month, the government reduced the windfall tax on domestic production of crude petroleum to ₹3,500 per tonne from ₹4,400 per tonne.
The change in windfall tax to Nil comes on the backdrop of a delince in crude prices in March. Brent prices fell below the $75 per barrel mark last month amid concerns about a banking crisis in the US and its economic fallout.
Talking about windfall taxes and their impact on OMCs, Sumit Singhania, Partner, Deloitte India said, "Withdrawal of windfall tax, except the reduced levy on diesel, is certainly a cheer for oil producing companies."
Singhania added, "Since it’s first levy in July 2022, windfall tax has made its impact felt on the oil companies’ economics and for the large part, this levy has been debatable despite it being arguably a positive step in net zero journey for a nation like India. For now, the oil producing companies can heave a sigh of relief, but for how long would remain up for speculation."
The start of April however has been in favour of crude oil prices after several OPEC+ countries, led by Saudi Arabia, have announced voluntary cuts from May 2023 to the end-2023 of nearly 1.1mb/d.
In its note, Kotak Institutional Equities, "The cuts reinforce our view of oil markets getting tighter in 2HCY23. Likely higher oil prices are negative for India as such, and particularly for OMCs."
On Wednesday, crude oil prices traded on a steady note as investors gauge the prospects of economic growth with expectations of a drop in US crude inventory after the OPEC+ production cut announcement.
Brent Crude traded over $81.7 per barrel, marginally up. While the US WTI was broadly flat at the $80.6 per barrel level. On Monday, crude oil prices gained by more than 6% after the OPEC+ output cut decision.