X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Can India break the new Hindu growth rate? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 17, 2001

    Can India break the new Hindu growth rate?

    The recent budget was a mixed bag for the energy sector. Although the Finance Minister re-iterated the Government’s resolve to adhere to the original petroleum marketing deregulation schedule, he increased the excise duty rates on diesel, petrol and compressed natural gas.

    For the energy sector fiscal 2001 and has not been anything to write home about. Crude oil prices which, started their trek in March 1999 climbed all the way to the ten year peak of $35 per barrel before they could subside. These sky high feedstock prices cut into the operating margins for the sector and consequently, companies are expected to report lower earnings in the current fiscal. In addition to high feedstock prices, growth in the sector as compared to earlier years has been quiet dismal. In fact, as per the regulatory authority, Oil Co-ordination Committee, fiscal 2001 is expected to show nil growth in consumption of petroleum products. However, other economy monitoring agencies put the figure at 2.6%. This too is low when compared to the CAGR growth of 6% over the last five years.

    In light of the poor domestic demand the Indian companies have had to resort to exporting their surplus production. India, which was the largest buyer of diesel has now started exporting diesel and petrol from the current fiscal, earning crucial foreign exchange for the country. The current refining capacity in the country stands at 114 MMTPA (million metric tones per annum), which is expected to increase to 162 MMTPA by 2007. The demand on the other hand is estimated to grow to 150 MMTPA over this period. Therefore, India will continue to remain in surplus and will need to export to ensure balancing of demand and supply. Such a scenario though does not augur very well for the domestic refining industry. In the case these capacities materialize the excess production will put pressure on the realizations of refiners.

    An important development in the sector recently has been the decanalisation on crude imports for PSU oil companies. The government had earlier permitted the private sector to source their own crude. However, PSU companies had to source their crude through Indian Oil (IOC). The new arrangement is expected to bring down procurement costs as the tenders will not impact the demand supply situation in the markets thus leaving prices neutral. Also, the dollar purchases will be significantly lower and not impact the exchange rates.

    The anticipated deregulation in petroleum marketing by 2002 is also an important event in the overall dynamics of the industry. Such a development will impact the visibility of the future industry scenario. Opening up the sector to global competition will see the entry of international majors. New entrants are required to invest in exploration & production, refining or transportation infrastructure before they are allowed in the lucrative marketing segment. To face the new industry scenario the first round of consolidation has already begun with public sector (PSU) stand alone refineries being merged with refining and marketing companies. Hence, there may not be any stand alone refineries as marketing infrastructure will hold greater bargaining power. This is one of the major reasons why global companies will be keen contenders in the disinvestment proceedings of oil PSUs. Also, they could be lobbying for this cause.

    Despite, the various permutations and combinations on the future industry scenario the possible demand growth continues to look attractive. Numbers have caused grief to many a MNC, however, India still is one of the lowest consumers of petroleum products. The per capita consumption of petroleum products in India stands at 98 kilograms (kgs) while that of China and the rest of the world is at 165 Kgs and 585 Kgs respectively. The consumer-wise break-up of the petroleum industry indicates the close co-relationship to the economy. The key consuming industries include power, shipping, cement, iron & steel, petrochemicals and fertilizers most of which form the core sector. A large part of the sales is also through the retail segment but this would include the transportation sector. Also, growth in passenger vehicles segment will impact the off-take of petroleum products. Therefore, the energy sector seems linked to the performance of core industries.

    It is imperative, therefore, that if India is to match China’s per capita numbers then the country will need to break the barrier of 6% GDP growth, which it is unable to overcome in the last few years. As a result the core sector will need to provide the much needed impetus for this future growth. The energy sector seems to be a play on the Indian economy. If one is a believer in the Indian growth story then the time seems to be near to fill up the tanks and enjoy the ride.

     

     

    Equitymaster requests your view! Post a comment on "Can India break the new Hindu growth rate?". Click here!

      
     

    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    Oil India Ltd: A weak quarter (Quarterly Results Update - Detailed)

    Jan 24, 2017

    Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.

    GAIL: A Robust Quarter (Quarterly Results Update - Detailed)

    Dec 3, 2016

    GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.

    ONGC: Lower Write-offs Support Performance (Quarterly Results Update - Detailed)

    Nov 3, 2016

    ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE OIL & GAS


    Aug 21, 2017 (Close)

    S&P BSE OIL & GAS 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS