ONGC, Oil India surge as government may exempt companies from oil subsidy burden for FY16

MUMBAI: Shares of upstream oil companies ONGC and Oil India surged in intraday trade following reports that the government is likely to exempt them from oil subsidy burden for FY16.

ONGC rallied as much as 8.1 per cent intraday, while OIL gained as much as 6.73% in intraday trade.

ONGC ended the day up 7.57 per cent and OIL ended the day in green, up 6.22%.

The government is likely to bear entire oil subsidy burden for FY16 provided crude stays near $60 per barrel, Finance Ministry sources told ET Now.

The move, once implemented, would improve the balance sheet of ONGC and Oil India. It will also make divestment of ONGC easier due to attractive valuations

Brokerages are of the view that ONGC and Oil India will be the major beneficiaries of the government’s decision.

Upstream oil and gas producers ONGC, OIL and GAIL had to borne a portion of subsidy on cooking fuels LPG and kerosene and diesel till October 2014. After diesel price was deregulated in October 2014, the subsidy sharing was limited to LPG and kerosene.

The exemption is expected to increase the government’s subsidy burden by Rs 10,000 crore on liquefied petroleum gas and kerosene.