Double trouble for oil stocks

% Chg *

Essar Oil257.14-9.46 Reliance Petro181.05-8.03 Chennai Petro350.8-7.79 MRPL90.95-6.86 Reliance Ind2,527.65-5.19 Bongaigaon Ref57.85-3.34 BPCL374.9-2.51 Indian Oil Corp442.65-1.59 HPCL242.3-1.56 * Over the closing price on May 8  Last Friday, the Essar Oil stock led the drop among oil scrips, declining 9.46 per cent to Rs 257, followed by Reliance Petroleum, down 8.03 per cent to Rs 181, Chennai Petroleum (down 7.79 per cent), MRPL (down 6.86 per cent), Reliance Industries (down 5.19 per cent), among others.  Oil stocks have been hit by a bearish sentiment as the government has refrained from raising petro-product prices even as crude oil hit new highs. This has led to under-recoveries for the companies, which are expected to be around Rs 1,60,000 crore (Rs 450 crore a day), according to an estimate by Networth Stock Broking.  The rupee depreciation has only added salt to the wound of oil companies, whose import bills are surging with every dollar rise in crude oil prices.  A buzz that the government is considering a ban on diesel exports has led to a further battering of oil stocks.  Analysts cited the rupee depreciation as one of the reasons for FIIs turning net sellers in the market in the last few days. FIIs offloaded stocks worth Rs 402.50 crore last Friday.  According to a Networth Stock Broking report, the rupee depreciation could impact the net profit of Reliance Industries by 10.04 per cent.  "The stock (Reliance Industries) can correct by 5-7 per cent, but the long-term potential looks good." said Manish Sonthalia, head, equity strategy, Motial Oswal.  Analysts are cautious about oil marketing companies, which have not yet declared their fourth quarter and annual results.  "There could be a serious change in the stand after results. They may be downgraded after getting a sense of their total under-recoveries. There is no clarity on the quantum of oil bonds that the government is going to issue. Something needs to be done for the health of these companies," added Sonthalia.