Oil stocks shed their morning gains on Thursday as the market awaited the government

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stand on the recommendations of the Kirit Parekh panel on oil sector subsidies. The stocks were also pulled down by losses in the broader market as the Sensex fell 270 points.

Gail rose 3.14 per cent to Rs 418, ONGC gained 0.56 per cent to Rs 1,139 and BPCL rose 0.35 per cent to Rs 582. IOC closed up 0.16 per cent at Rs 316, Hindustan Petroleum ended down 0.8 per cent after having risen earlier, while Reliance Industries fell 1.4 per cent to Rs 1,019.40. Essar Oil was down 2.4 per cent at Rs 138.95.

Analysts said the implementation of the Parekh panel recommendations will mean gains for all oil sector companies. Says a Bank of America-Merrill Lynch report, the subsidy cut may mean higher realisations of subsidy for ONGC and Oil India, which therefore appear better placed to gain. Refining and marketing companies will gain only on full implementation of the report.

The report said full implementation of the proposals would mean no subsidy for refining and marketing companies and Gail and sharply lower subsidies for ONGC and OIL. In case of full implementation, there will be big gains for all — ONGC, OIL, Gail and R&M companies including BPCL, HPCL, IOC. According to a Citigroup report, the display of positive intent by the government, at least towards full compensation to oil marketing companies, will significantly increase confidence in the valuation of these stocks.

Macquarie said the committee has recommended removal of subsidy burden on oil marketing companies and also gas transmission company Gail. It estimates that profits of OMCs could nearly double, implying a very compelling PE valuations of 5-8x. Stock prices and profits had doubled in 2002, when free pricing was temporarily introduced. Gail’s profits could rise by more than 30 per cent, it said. The report said private oil sector retailing companies could benefit as they can get a level-playing field. The committee has recommended taking out Gail from the upstream subsidy burden as it doesn’t benefit from oil price movements in any way. Gail will be the biggest beneficiary if the recommendations are implemented, the report said.