Diesel price is politically determined, avoid OMCs: Dipan Mehta

In a chat with ET Now, Dipan Mehta, Member BSE and NSE shares his views on OMCs. Excerpts:

ET Now: How likely is the price hike in diesel and how beneficial could it be for some of the OMC stocks?

Dipan Mehta: That is not a question which I can answer, that is the question which only the government can answer. There have been numerous committees and commissions and a lot of analyses and arguments have gone in favour of raising diesel prices rapidly. The fiscal position is precarious because of all the subsidies which the government has to pay out, but there are political compulsions as well. So at the end of the day, it all depends upon what the government decides.

There is no economic logic to subsidising diesel to such a large extent, as is being done right now, but whenever a diesel price hike takes place, it will have a positive effect on the oil marketing companies. That is a known fact, but more importantly, we have to see beyond all the short term measures and see if the government can give complete freedom to the oil marketing companies in true spirit. That could be a game changer for the entire oil sector and I am not certain if that would be possible, at least until the general elections are over.

Nevertheless, as and when there is some positive news flow on raising of diesel prices, you may see some positive effect on the oil marketing companies, but at the end of the day, these companies do not merit long term investments from an investor's viewpoint.