Shares of Oil and Natural Gas Corp. Ltd (ONGC) have had a stunning recovery in recent months. From its annual closing low around mid-February, the ONGC stock has appreciated as much as 27%. Of course, until February, the shares had declined meaningfully in the previous months back then. Investors have been worried that the state-run upstream oil producer would have to bear some subsidy burden for financial year 2019. As such, the recent increase in share price is some catch-up and thanks to declining fears of subsidy sharing, said analysts. What’s more, ONGC has told analysts that upstream companies are unlikely to share the subsidy burden now.
The government has created a reasonable budgetary provision of ₹37,500 crore for the FY20 cooking fuel subsidy, which implies zero burden on upstream PSUs as long as Brent averages under $65 a barrel, said analysts from SBICAP Securities Ltd. While this augurs well, a sharper decline in broader crude prices will mean lower prices realisations.
