Volatility in ONGC share price is cause of concern

MUMBAI: The government is reluctant to sell 5 per cent stake in ONGC as volatility in stock price has become a matter of concern.

The stock has corrected over 17 per cent since the beginning of November against a 2.72 per cent decline in the Sensex in the same period.

If the crude oil prices remain low and no new subsidy sharing formula is announced, the stock may take further beating.

The divestment may now happen only after January 7 as the government is working on favourable subsidy sharing formula to offset weakness in stock price, reports Ruchi Bhatia of ET Now.

The Finance Ministry is trying to bring in more clarity on subsidy sharing in ONGC following a sharp fall in oil prices. The clarity is likely to boost ONGC’s stock price.

The government is also waiting for US Federal Reserve's decision on monetary policy as any adverse decision may drive out liquidity from equity markets.

According to media reports, subsidy sharing burden of ONGC may be reduced to Rs 4,500 per tonne on oil development cess it pays to the government.

Analysts expect lower subsidy burden will help in improving ONGC’s net realization in FY16 following sharp fall in global crude oil prices.

“Given declining fuel under-recoveries on the back of diesel de-regulation and fall in crude oil price, we see strong case for lower subsidy burden and consequently higher net crude realisation for ONGC and OIL,” said Systematix Institutional report.

“Hence, we model FY15E/FY16E blended upstream subsidy burden at $52.7/$2.3 per barrel and net realisation at USD49.9/USD57.7 per barrel,” the report added.

At 12:40 p.m.; the stock was at Rs 341.10, up 1.23 per cent, on the BSE. It touched intraday high of Rs 342.55 and a low of Rs 335 in trade today.