Shares of Oil and Natural Gas Corporation (ONGC), Oil India Limited, and Reliance Industries among others rallied up to 7 percent in early trade on Wednesday after the government cut a windfall tax on oil producers and refiners.

Share Market Live

NSE

ONGC stock which rallied more than 7 percent intraday was the top gainer in the BSE Oil and Gas sectoral index, followed by an over 6 percent jump in Oil India and 4 percent in Reliance Industries.

Here’s how the stocks of oil companies are faring after the windfall tax cut

The windfall tax on domestically produced crude oil was cut to Rs 17,000 a tonne from Rs 23,250. (Windfall tax is a higher tax rate levied on a particular company or industry when it makes sudden big profits.)

The government said in a statement an export tax of Rs 6 a litre no longer applied to gasoline. It also reduced duty on diesel and aviation-fuel exports by Rs 2 a litre to Rs 10 and 4 rupees a litre, respectively, it said.

The moves come less than three weeks after the Centre had imposed the charges. All changes become effective from July 20.

Also Read: Palm oil prices expected to drop by more than 20 percent — here is how it will impact FMCG companies

The export tax was imposed after oil refiners made profits exporting fuel to deficit regions such as Europe in the aftermath of Russia's invasion of Ukraine. Some media reports suggested that few oil companies processed Russian crude oil available at a discount after the ban by the West.

The tax was imposed on crude oil producers and levies on exports of gasoline, diesel and aviation fuel on July 1 after private refiners turned to fuel exports to deficit regions such as Europe in the aftermath of Russia's invasion of Ukraine.

Meanwhile, oil prices fell slightly in morning trade, pressured by global central bank efforts to tame inflation and ahead of expected builds in US crude inventories as product demand weakens.

Harshvardhan Dole of IIFL Securities told CNBC-TV18 that one positive takeaway from this is that the government has been pragmatic and tried to address the situation as soon as things have come under control.

“For example, oil has moderated, spreads have come down, and they have cut down the export tax. And to that extent, there seems to be some thinking within the government, that you should also try and address the concerns of minority shareholders. And that to me, will be taken quite positively from whatever has been happening in the last 2-3 weeks,” Dole said.

However, he said that earnings visibility still is extremely poor. “The way Singapore Refinery Margin has been moving and the way oil prices have been moving, it is tough to take a call on near-term earnings and therefore, investors will take a call on earnings based on normalised earnings, normalise assumptions, say USD 10-12 Singapore Refinery Margin still will imply a good 15 percent odd upside in RIL and ONGC of course, at USD 75 per barrel is still trading at below 4-times on FY23-24 earnings.”

(With inputs from Reuters)

Explained: What is windfall tax and why the had govt levied it on refiners?

First Published:Jul 20, 2022 12:55 PM IST