Govt paves the way for Rs 15,000 cr ONGC sell-off

In a move that will help the government kick start another big-ticket disinvestment, that of 5% in Oil and Natural Gas Corp (ONGC) and rake in close to Rs 15,000 crore, the petroleum ministry has finalised the new oil subsidy-sharing formula after hectic consultations with the finance ministry and the chief economic adviser.

This comes close on the heels of the success of the recent round of 10% divestment in Coal India Ltd (CIL) that fetched the government a massive Rs 24,557 crore, or nearly half of the budgeted sell-off proceeds of Rs 43,425 crore for 2014-15.

The ONGC stake sale will bring the government closer to achieving its disinvestment targets for the first time in many years.

Under the new subsidy-sharing formula, ONGC will have to pay only Rs 3,252 crore to state-owned fuel marketing companies (Indian Oil, BPCL and HPCL) for the third quarter (October-December 2014) and virtually nothing for the fourth quarter (January-March 2015), top government sources said.

“After consideration of suggestions received from the chief economic adviser, the formula for burden sharing as approved by the oil ministry calls for no contribution towards subsidy for crude oil price less than and equal to $60 a barrel and 85% contribution for crude oil prices exceeding $60 a barrel and less than or equal to $100 a barrel,” sources said. “The contribution will be 90% for crude oil price exceeding $100 per barrel.”

With the average price of Indian basket crude during October-December at $75.17 per barrel and the average rupee-dollar exchange rate at Rs 62 to a dollar, the total contribution of ONGC and OIL during the third quarter of 2014-15 stands at Rs 3,746 crore — Rs 3,252 crore for ONGC and Rs 494 crore for OIL.

And with the average price of the Indian crude basket at $46 a barrel in January 2015, it is unlikely to exceed $60 a barrel, thereby zeroing the subsidy burden on ONGC and OIL.

Public sector oil marketing companies have incurred an under-recovery of Rs 15,981.28 crore on the sale of diesel, PDS kerosene and subsidised domestic LPG during the third quarter.

The oil ministry has asked the finance ministry to release its share of Rs 2,184 crore towards the subsidy-sharing formula to oil marketing companies.

For the April-September period of 2014, out of the total cash assistance requirement of Rs 19,183.33 crore, cash compensation of Rs 17,000 crore was sanctioned, leaving a gap of Rs 2,183.33 crore.

The time of a stake sale in ONGC is yet to be announced but oil minister Dharmendra Pradhan said that it “was very much on the list of disinvestment candidates for 2014-15” but the government will “factor in market conditions” for the timing of the sale.

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Sensex hovers near 29,000; metal, realty stocks shine

Benchmark indices are fluctuating in a narrow range with marginal gains as the losses in capital goods, select bank and auto shares have capped the gains in select oil and index heavyweight stocks like ONGC Infosys, HDFC and ITC.

At 2:18PM, the 30-share Sensex and the 50-share Nifty were flat at the mark of 29,011 and 8,760 respectively.

In the broader market, both the BSE Midcap index, up 0.2 % and Smallcap index, up, 0.4%, have performed better than the front-liners. Market breadth in BSE is marginally negative with 1,381 declines against 1,361 advances.

Annual growth in production of the eight key infrastructure industries declined to a three-month low of 2.4 per cent in December, compared with 6.7 per cent the previous month and four per cent in December 2013. This is likely to have a negative impact on the industrial growth numbers for the month, as these industries have a weight of 38 per cent on the Index of Industrial Production (IIP).

Meanwhile, foreign institutional investors continue to remain net sellers to the tune of Rs 264 crore on Tuesday, as per provisional stock exchange data.

Buzzing Stocks

4 out of the 12 sectoral indices of BSE are in red. BSE Metal and Realty indices have gained around 2.5% and are the top gainers followed by BSE Healthcare index, up 1%. BSE Capital Goods index has lost around 0.9% and is the top loser followed by BSE Power index, down 0.7%.

HDFC Bank has gained over 1%. According to media reports, HDFC Bank is likely to raise Rs 10,000 crore from the market, especially overseas, in this month. Housing finance major, HDFC too has gained over 1%.

Select banking shares have extended losses for the second straight session after the Reserve Bank of India (RBI) Governor Raghuram Rajan decided to leave repo rate unchanged at its credit policy meet yesterday.

Axis Bank has declined around 4%, ICICI Bank is down around 1% and SBI is down 0.7%.

Hero Motocorp is trading higher by nearly 1% after paring early losses. The auto major posted lower than expected quarterly results. The earnings were lower owing to marketing expenses at home and overseas, and investments in capacity expansion.

Shares of NTPC turn ex-dividend today for an interim dividend of Rs 0.75 per share for the year ending 31 March 2015. The stock is down nearly 0.7%.

ONGC has extended its yesterday’s rally and is gaining on rising crude oil prices. According to media reports, the government is working out the subsidy sharing formula and expedite divestment of its stake in ONGC Crude oil extended a rally that has pushed up prices 20% in the past four trading sessions following oil’s bottom to near six-year lows. The stock is up around 3%.

Metal stocks are trading firm in today’s session. Sesa Sterlite has extended gains and is up 3.6% after global iron ore prices bounced back. Hindalco has gained around 3.6% and Tata Steel is up 2.5%.

Pharma shares too have gained in today’s session. Sun Pharma has gained over2%, DR Reddys Lab has gained around 1% while Cipla is marginally up by 0.1%.

Bharti Airtel has declined over 1% ahead of its quarterly results due later today.

Among other shares, Panacea Biotec has gained over 6% to Rs 147 after being elected for the supply of Pentavalent Vaccine worth around Rs 83.52 crore by Pan American Health Organization (PAHO).

Global Markets

Amid a rebound in global crude prices, Japan’s Nikkei, up 1.9%, posted its biggest gains in more than two weeks on Wednesday on strong corporate earnings and hopes for a new Greek debt swap deal.

Hong Kong shares too rose in line with most Asian markets. Hang Seng index gained around 0.5%. However, Shaghai Composite index declined around 1% after paring early gains.

European markets have opened on a cautious note as the new Greek government dropped calls for a write-down of its foreign debt, easing concerns about growing instability in the euro zone. FTSE 100 and DAX indices have declined around 0.1% while CAC 40 is trading flat.