According to CRISIL, with ongoing price revisions and softer crude prices under-recoveries of state-run oil companies would halve
Ratings agency CRISIL said, as efforts are taken to move towards market-linked diesel prices, there are expectations in the decline in the prices of petroleum products by over 50% from 2013-2014 levels over the next two years. There is also an expectation of decline in crude oil prices. The upstream and downstream PSU oil companies will see a positive growth due to the changes
As expected, interest costs will reduce and they will not have any under-recovery pressures as the profit after tax (PAT) of downstream companies will rise by Rs33-36 billion year-on-year in 2014-2015 and another rise by Rs7-10 billion in 2015-2016.
Further, there will be sharp improvements to the tune of Rs105-120 billion y-o-y, in PAT in 2014-2015, in upstream companies and further increase of Rs70-75 billion in 2015-2016. CRISIL in the report says “the impact of reduced burden of under-recoveries will more than offset the impact of decline in realisations due to lower crude prices. If we include the benefit from the potential hike in gas price to US$8.4 per mmbtu, PAT of upstream companies will further increase by Rs70-75 billion in 2014-15, resulting in an overall increase of Rs215-230 billion”.
Adding to it, the report points out that the under-recoveries are expected to decline further by 30-35% y-o-y to Rs900-1,000 billion in 2014-15 and 25-30% y-o-y to Rs 600-700 billion in 2015-16. The reasons stated are that there will be a fall in international petroleum prices products in the next two years.
“Over the next 2 years, global crude oil supply will outpace demand with growth in the latter continuing to remain sluggish. Global demand growth is expected to be impacted by weak crude oil demand in North America and Europe on account of increase in efficiencies and a shift towards natural gas, as well as relatively slower demand from developing countries such as China and India led by declining subsidies”, pointed in the report.
Secondly, the slower growth in diesel consumption has gradually aligned the domestic diesel prices with the international prices. As government’s decision to hike the diesel price by 50 paise every month to reach the aligned international prices takes effect, the under-recovery on diesel which accounted for about 45% of the total burden in 2013-2014 is likely to eliminate by the end of 2014-2015.
The report also suggests that in 2014-2015 the PAT of upstream companies will get a rise because of hike in gas prices. The report stated “The potential increase (as per the Rangarajan committee formula) of the natural gas price to $8.4 per mmbtu from $4.2 per mmbtu will increase the PAT of upstream companies (ONGC, Oil India) by Rs110-115 billion in 2014-15. The combined effect of lower under-recoveries and the gas price hike is expected to lift PAT of upstream companies by about Rs215-230 billion in 2014-15”.
More and more of positive news attracts fresh buying
The Indian market opened Monday much up than previous closing and moved higher hitting the new high at the end of the morning session. The market was looking ahead for President Pranab Mukherjee's address to the joint sitting of Parliament, laying the roadmap of the new government headed by Prime Minister Narendra Modi. The President's speech highlighted the government's economic agenda.
The S&P BSE 30-share Sensex opened at 25,544 and moved in the range of 25,497 and 25,645 and closed at 25,580 (up 184 points or 0.72%). NSE 50-share Nifty opened at 7,622 and moved between 7,580 and 7,674 and closed at 7,655 (up 71 points or 0.94%). The NSE recorded a higher volume of 193.71 crore shares. India VIX rose 6.96% to close at 17.0950.
Except for FMCG (0.13%) and PSU Bank (0.23%) all the other Asian indices closed in the green. The top five gainers were Realty (5.96%), Media (3.80%), Smallcap (2.69%), Infra (2.39%) and CPSE (1.92%).
Of the 50 stocks on the Nifty, 35 ended in the green. The top five gainers were Grasim (11.41%), Power Grid (7.10%), Bajaj Auto (5.56%), Coal India (5.31%) and Asian Paints (4.86%). The top five losers were ONGC (2.54%), BPCL (2.17%), Hindustan Unilever (1.43%), State Bank of India (1.23%) and Infosys (0.77%).
Of the 1,599 companies on the NSE, 1,148 companies closed in the green, 422 companies closed in the red while 29 companies closed flat.
Among other things President Mukherjee in his address said that containing food inflation will be new government's top priority. In this speech he also mentioned that reforms will be undertaken to enhance the ease of doing business, the tax regime will be made non-adversarial, conducive to investment, enterprise and growth and that the government will follow a policy of encouraging investments, including through FDI. He also mentioned that the government will formulate clear rules for allocation of coal, minerals and telecoms spectrum.
President Mukherjee said the government will chalk out an ambitious infrastructure development programme to be implemented in the next 10 years. Cement stocks were positively affected by this. Grasim Industries (11.42%) was among the top two gainers in the ‘A’ group on the BSE.
Defence stocks will be in focus after the president mentioned in his speech that the new government will carry out reforms in defence procurement to increase efficiency and economy. However Pipavav Defence (4.98%) was the top loser in the ‘A’ group on the BSE.
Tata Power was in news as it said its renewable energy capacity has risen to 1,170MW with the commissioning of its 28.8MW solar plant at Palaswadi in Maharashtra. Tata Power (2.62%) was among the top four gainers in the Sensex 30 pack.
ONGC (2.31%) was the top loser in the Sensex 30 stock.
US indices closed in the green on Friday.
Except for Jakarta Composite (1.06%) and Seoul Composite (0.27%) all the other Asian indices closed in the positive. Hang Seng (0.73%) was the top gainer.
Chinese exports beat projections, rising 7% last month from a year earlier. Imports dropped 1.6 % from a year earlier after a 0.8% advance in April. The trade surplus swelled to $35.92 billion.
European indices were trading in the green while US Futures were trading marginally lower.
President Mukherjee's address is the political, economic and foreign policy roadmap of the Narendra Modi Government and covers virtually all the crucial areas, including the need to address the difficult economic situation
Here are the highlights of the President's speech...
• The government will function on the mantra of ‘Minimum Government, Maximum Governance’.
• The government will be committed to the goal of ‘poverty elimination’ rather than ‘poverty alleviation
• The government will stress on putting in place transparent systems and time-bound delivery of government services. Obsolete laws, regulations, administrative structures and practices to be modified to improve efficiency.
• Information Technology will be used to drive re-engineering of government processes to improve service delivery and programme implementation. Wi-Fi zones in critical public areas to be set up in the next five years.
• A multi-pronged approach to be adopted to address the problem of high pendency of cases in our judicial system.
• Vacancies in judiciary to be filled up on priority; number of courts and judges in the subordinate judiciary to be doubled in a phased manner.
• Containing food inflation will be the topmost priority with an emphasis on improving the supply side of various agro and agro-based products.
• Public Distribution System will be reformed incorporating best practices from the States.
• Agriculture & Rural Development
• Amenities to be provided in rural areas through empowered Panchayati Raj institutions.
• Investment in agriculture, both public and private, to be stepped up especially in Agri-infrastructure.
• The government to address issues pertaining to pricing and procurement of agricultural produce, crop insurance and post-harvest management.
• The government will also incentivise the setting up of food processing industries
a National Land Use Policy which will facilitate scientific identification of non-cultivable land and its strategic development will be adopted.
• ‘Pradhan Mantri Krishi Sinchayee Yojana’ will be launched to complete the long pending irrigation projects.
• Micro irrigation to be popularised to ensure ‘Per drop-More crop’.
Policies to revive the economy
•Predictable, transparent and fair policy environment to be adopted to revive economic growth.
• The government will embark upon rationalisation and simplification of the tax regime to make it non-adversarial and conducive to investment, enterprise and growth.
• Reforms to be undertaken to enhance the ease of doing business. It will follow a policy of encouraging investments, including through FDI; which will be allowed in sectors that help create jobs and assets.
• The government will make every effort to introduce the GST while addressing the concerns of States.
• For rapid creation of jobs in the manufacturing sector, the government will strategically promote labour-intensive manufacturing.
• A fast-track, investment friendly and predictable PPP mechanism will be put in place.
• Modernization and revamping of Railways is on top of the infrastructure agenda. The government will launch a Diamond Quadrilateral project of high speed trains.
• A time-bound and well monitored programme for execution of the National Highways programme to be initiated, to overcome the stagnancy of the past few years.
• Low cost airports to be developed to promote air connectivity to smaller towns.
• The government will facilitate modernization of existing ports on one hand, and development of new world class ports on the other.
• Inland and coastal waterways to be developed as major transport routes.
• The government will build 100 Cities focussed on specialized domains and equipped with world class amenities
• The government will initiate a mission mode project to create 50 tourist circuits that are built around specific themes.
• The government will soon come out with a comprehensive National Energy Policy.
• The national solar mission to be expanded.
• The international civil nuclear agreements to be operationalised and nuclear power projects for civilian purposes will be developed.
• Reforms in the coal sector will be pursued with urgency for attracting private investment in a transparent manner.
• The government strongly believes that environmental conservation can go hand in hand with development.
• Environment and forest clearance systems will be made more predictable, transparent and time-bound. Simultaneously, an effective system will be developed for sound appraisal processes and strict compliance of clearance conditions.
HRD and Skill development
• The government will set up Massive Open Online Courses and virtual classrooms in order to break the barriers between formal education and skill development.
• IITs and IIMs will be set up in every state.
• In order to empower school teachers and students, a national e-library will be established.
• World class research centres to be built in the fields of nanotechnology, material sciences, thorium technology, brain research, stem cells, etc.
• The government will also establish Institutes of Technology for Rural Development and a Central University of Himalayan Studies.
• The government will formulate a New Health Policy and roll out a National Health Assurance Mission. AIIMS like institutes will be established in every State in a phased manner.
• For ensuring hygiene, waste management and sanitation across the nation a “Swachh Bharat Mission” will be launched.
Welfare & Empowerment
• For the Scheduled Tribes, a dedicated “Van Bandhu Kalyan Yojana” will be launched.
• Electrification of tribal hamlets and connecting them with all-weather roads will be given priority.
• The government will especially strengthen measures to spread modern and technical education among minority communities and a National Madarsa Modernization Programme will be initiated.
• To promote empowerment of girl-child the government will launch a mass campaign ‘Beti Bachao – Beti Padhao” for saving the girl child and enabling her education.
• The government will pursue a policy of zero tolerance towards terrorism, extremism, riots and crime will be pursued.
• States will be assisted for modernizing police infrastructure and equipment to tackle new forms of terrorism including Narco terrorism and cyber threats.
• Government will carry out reforms in defence procurement to increase efficiency and economy. It will also encourage domestic industry, including the private sector; to have a larger share in design and production of defence equipment.
• The government will be committed to strengthening defence preparedness by modernising our Armed Forces and addressing the shortage of manpower on priority.
• A Veterans Commission to be appointed to address the grievances of retired defence personnel.
• The government will build a National War Memorial to honour the gallantry of our soldiers.
• One Rank, One Pension scheme to be implemented.
International Relations :
• The Government will engage energetically with other neighbours in our region, including China, with whom we will work to further develop our Strategic and Cooperative Partnership
• India-US relationship to be given a boost to intensify engagements in the areas of trade, investment, science and technology, energy and education.