Not a positive news for ONGC..

If this piece of news is correct http://www.business-standard.com/india/news/finmin-wants-ongc-others-to-pay-rs-56700-cr-fuel-subsidy/147052/on, then it will be detrimental for upstream companies. It will be suicidal for ONGC. In the last financial year FY10-11, ONGC paid Rs. 24,892 crore as subsidy. As per this news, ONGC subsidy share would increase to Rs 47,640 crore this fiscal. Till now, market was under impression that upstream companies would share one-third of Rs. 1.14 lakh crore subsidy. But it seems the Finance Ministry wants upstream companies to share one-third subsidy of Rs. 1.71 lakh crore, which was the subsidy amount before June duty cuts and fuel price hike. It goes without saying that it would be body blow for ONGC. I guess a lot of investors would have cried foul if this subsidy hike would have happened after FPO. After this subsidy hike, it would be difficult for government to come with FPO price more than 230-240. It might be a possibility that the government scraps FPO altogether after its antics. In Q4, FY11 also government arbitrarily increased upstream subsidy share from 33% to 38.8%. Its time to stay miles away from ONGC on long side. Government just want to reduce its share of subsidy so you never know what is the next googly. I have written ONGC October series 300 calls. Given all the negative sentiment around market in general and ONGC in particular, it would be difficult for ONGC to move up sharply from current levels. But one has to watch crude price level, if it corrects sharply, it might make the case for ONGC not falling sharply either. INR has depreciated recently, nullifying any kind of positive impact of crude price fall.


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