Although still well into the positive, Indian stock markets pared some gains in the last two trading hours. All the sectoral indices, barring IT, are trading in the positive with realty and metal stocks leading the pack of gainers.
Majority of the sugar stocks are trading positive, with Uttam Sugar and Sakthi Sugar trading the strongest and Oudh Sugar Mills trading the weakest. As per a leading financial daily, the Supreme Court upheld the decision taken by the UP state government to pay State Advised Price (SAP) to the sugarcane farmers in the State. This is likely to increase woes of the sugar companies grappling with surplus sugar and limited export quota which will keep sugar prices depressed for the period October-September (2011-12). With the SAP of sugarcane in the State set 20% higher YoY at Rs 240 per quintal, the cost burden of sugar companies in the State is set to increase and coupled with lower realizations, earnings will be hit. However companies which have diversified into electricity co-generation from bagasse or ethanol production from molasses will be relatively insulated. Bajaj Hindusthan and Balrampur Chini Mills earn at least 20% of their revenues from power, ethanol and other sugar by-products. Both the stocks were up by 2.2% and 0.8% respectively.
Barring Oil and Natural Gas Corporation Ltd. (ONGC), oil stocks have been trading in the green led by Hindustan Petroleum Corporation Ltd (HPCL) and Essar Oil. As per a leading financial daily, upstream state run oil and gas firms like Oil and Natural Gas Commission Ltd. (ONGC) and Oil India Ltd. (OIL) may face a cap on the price they can realize on selling crude. In order to tackle the problem of rising subsidy burden, the finance ministry is considering the option of giving these companies a fixed price on crude sales. The two companies produce around 28 million tonnes of crude annually and are entitled to international oil prices as of now. However, they have to take care of at least one third of under recoveries incurred by state run oil marketing companies. As per the proposal, ONGC and OIL will realize US$ 55-60 per barrel versus international prices of US$ 110 per barrel. The new proposal is expected to yield Rs 500 bn that would replace the subsidies paid by upstream companies. In FY11, the upstream sector shared 38% under recovery burden. As per a Government official, the two companies are fine with capped price system provided they know in advance the level at which prices will be capped.