CLSA believes the Indian government’s decision to hike excise duty on petrol and diesel by ₹2 per litre is modest compared to the recent steep decline in crude oil prices. The brokerage highlights that while the duty hike is equivalent to a crude price increase of about US$4 per barrel, it remains significantly lower than the US$12 per barrel drop seen in the past three trading sessions.
According to CLSA estimates, this tax hike is expected to boost government revenues by approximately US$4 billion annually. Despite the increase, CLSA notes that retail fuel prices remain unchanged, primarily because the marketing margins on diesel and petrol continue to remain above recent quarterly averages. This provides some cushion for oil marketing companies (OMCs) such as IOC, BPCL, and HPCL.
Additionally, the government also raised domestic LPG prices by ₹50 per cylinder. CLSA believes this move should help halve the current under-recoveries on LPG and offer near-term relief to the state-run oil firms.
However, CLSA cautions that recent comments from the oil minister raise the possibility of retail price cuts if global crude remains subdued (below US$70/bbl) in the coming weeks. This may keep investors on edge, especially if fuel price revisions follow further crude softness.
