Oil explorers saw mixed moves on Monday, with dependency rising and CGSB falling, after the government lowered a one-off tax on domestically produced crude oil
The windfall levy on domestic crude oil is impacting companies such as ONGC and Vedanta, and the one on diesel and jet fuel exports is impacting Reliance, a major fuel exporter.
The Center has lowered the tax on large profits derived from crude oil produced in the country – thanks to a surge in world prices earlier this year – from Rs 2,800 to Rs 10,500 per ton, in line with international rates.
It also reduced from Rs 3.5 to Rs 10 per liter and Rs 4 to Rs 5 per liter respectively.
A drop in crude oil prices to a six-month low led to the reduction of the windfall tax. On Monday, benchmark Brent crude futures fell nearly 34% from a 14-year high of $139 a barrel hit in March this year.
CLSA sees up to 50% upside in shares of ONGC and Oil India as the two remain its top picks. The latest exceptional tax measures taken by the government are in line with forecasts, according to the brokerage.
Many Dalal Street analysts suggest avoiding the pack due to high volatility.
“Oil and gas stocks have been making a lot of noise in recent years, but no real wealth as such…Even those who own ONGC stocks can just walk out on any occasion,” AK said. Prabhakar, head of research at IDBI Capital Markets. CNBCTV18.com earlier this month.
India first imposed the windfall tax on July 1, joining a number of countries that tax energy companies’ above-normal profits resulting from a sudden rise in oil prices. However, global crude oil prices have cooled since then, eroding profit margins for oil producers and refiners.
In another development, ONGC urged the government to remove the windfall tax on crude oil and instead use the dividend route to tap into windfall income from explorers.
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