How will markets react if fuel price hike happens?
The government, meanwhile, said there is no proposal under consideration to raise retail fuel prices.
Any hike in petrol and diesel prices after the conclusion of state elections could trigger a knee-jerk sell-off in domestic equity markets, analysts said.
The view follows a report by Kotak Institutional Equities indicating a potential increase in fuel prices once polling for assembly elections, including in West Bengal, concludes on April 29. The brokerage has projected a Rs 25–28 per litre rise in petrol and diesel prices, assuming crude oil remains near $120 per barrel.
The government, however, has dismissed such reports as “mischievous and misleading” and said there is no proposal under consideration to raise retail fuel prices.
Polling in West Bengal (Phase-II) is scheduled for April 29, while counting of votes for all states and Union Territories will take place on May 4.
According to the Kotak report, state-run oil marketing companies are currently absorbing losses of about Rs 27,000 crore per month due to the gap between global crude prices and domestic retail rates.
Vishnu Kant Upadhyay, AVP (Research) at Master Capital Services, said “a petrol price increase post state election is likely to trigger a knee-jerk selloff, particularly in consumption-driven sectors such as FMCG, automobiles and logistics, where margins are sensitive to input costs. He added that benchmark indices may face short-term pressure amid concerns over inflation and its implications for monetary policy.
He said the extent of the market reaction would depend on the scale of the hike. A modest increase may be absorbed quickly, but a steep rise could lead to sustained selling, with the Nifty potentially drifting towards the 23,800–23,500 range.
The government, meanwhile, said state-owned fuel retailers are incurring losses of around Rs 20 per litre on petrol and about Rs 100 per litre on diesel, as retail prices have remained unchanged for nearly four years despite a surge in global oil prices.
Rejecting speculation of a steep hike, the Ministry of Petroleum and Natural Gas (MoPNG) said in a post on X that there is no such proposal under consideration.
At a briefing, Sujata Sharma, Joint Secretary in MoPNG, said crude oil prices have been highly volatile, rising from about $70 per barrel last year to an average of over $113 this month, but retail fuel prices have not been increased.
She said the government’s effort has been to maintain price stability despite global fluctuations, including those following the conflict in West Asia. India meets about 88 per cent of its oil requirement through imports.
Sharma said under-recoveries — the gap between retail prices and import parity rates — vary daily but are currently estimated at around Rs 20 per litre on petrol and Rs 100 per litre on diesel.
Pravesh Gour, Senior Technical Analyst at Swastika Investmart, said markets may initially react with caution to any fuel price hike, leading to short-term volatility.
He said while oil marketing companies may benefit from improved margins, sectors such as aviation, logistics and FMCG could face higher costs. Automobile demand may also be impacted if fuel prices rise significantly.
He added that while the immediate reaction may be negative, markets could stabilise over time as investors adjust to the revised pricing environment.
The government last month cut excise duty on petrol and diesel by Rs 10 per litre each to cushion consumers from rising global oil prices. It also imposed a tax on fuel exports to encourage refiners to prioritise domestic supply.
Global oil prices had surged following geopolitical tensions in West Asia, rising from about $70 per barrel to nearly $119 before easing slightly. Brent crude is currently trading in the range of $103–106 per barrel.
Despite a more than 50 percent rise in crude prices, retail fuel prices in India have remained unchanged since early April 2022. In the national capital, petrol is priced at Rs 94.77 per litre and diesel at Rs 87.67 per litre.
Source : Moneycontrol