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As soon as the news of increase in the prices of petrol and diesel by ₹ 3 per liter came across the country today, the budget of the common man got spoiled, but another shocking news came out from the stock market. Generally it is expected that due to increase in the prices of products, the profits of companies will increase and their shares will rise, but today the opposite happened. There was a huge decline in the shares of the country’s leading government oil companies—HPCL, BPCL and IOCL. These shares fell by 3% during trading, due to which many questions have arisen in the minds of investors.

Why did shares fall even though prices increased?

Market experts believe that this increase of ₹3 is like ‘cumin in the camel’s mouth’. In fact, due to the ongoing tension in the Middle East and rising prices of crude oil, oil companies were already incurring huge losses. Brent crude has crossed $107 per barrel in the global market. According to experts, companies needed to increase the prices of petrol and diesel by at least ₹ 17 to ₹ 18 per liter to completely eliminate their losses, but in view of inflation, the government limited it to only ₹ 3. This ‘low growth’ disappointed investors.

fear of huge losses

The biggest reason for investors’ concern is the increasing ‘under-recovery’ of oil companies or in simple words ‘recovery less than the cost’. According to rating agency ICRA, due to the current high level of crude oil, despite the increase of ₹ 3, oil companies are facing a loss of about ₹ 500 crore every day. It is estimated that in the current quarter (June quarter) these companies may suffer a loss of more than ₹ 57,000 crore. Due to this fear, investors have started withdrawing their money (Profit Booking) from these shares.

Minister’s signals and market uncertainty

Union Petroleum Minister Hardeep Singh Puri had recently indicated that the financial pressure on oil marketing companies (OMCs) is very high and is likely to increase further in the future. However, there is also uncertainty in the market whether the government will increase prices again to control inflation or not. If crude oil prices continue to rise at this rate and domestic prices remain stable, the balance sheets of companies may worsen further.

Latest status of stock market

OMC shares disappointed the most amid fluctuations in Sensex and Nifty on Friday. The Nifty Oil and Gas index declined by more than 1.2%. Shares of HPCL fell the most by around 2.65% to ₹367.10, while BPCL and IOCL also closed in the red. At present, the eyes of the market are fixed on the conditions in the Middle East and the international prices of crude oil, which will decide what will be the trend of these stocks in the coming days.