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Sensex Surges 320 Points; ONGC Tanks 4.5%
Thu, 24 May Closing

After opening the day in green, share markets in India witnessed positive trading activity throughout the day and ended the day on a positive note. Sectoral indices traded on a mixed note, with stocks in the IT sector and stocks in the banking sector, leading the gains.

At the closing bell, the BSE Sensex stood higher by 318 points (up 0.9%) and the NSE Nifty closed up by 83 points (up 0.8%). The BSE Mid Cap index ended the day down 0.2%, while the BSE Small Cap index ended the day down by 0.1%.

The rupee was trading at Rs 68.38 against the US$ in the afternoon session. Oil prices were trading at US$ 79.21 at the time of writing.

Asian stock markets finished in mixed. As of the most recent closing prices, the Hang Seng was up by 0.3% and the Shanghai Composite was down by 0.5%. The Nikkei 225 was down by 1.2%. Meanwhile, European markets, too were trading mixed. The FTSE 100 was down by 0.1%, The DAX, was flat while the CAC 40 was up by 0.4%

In news from stocks in the oil and gas sector. ONGC share price was among the top losers in a rising market today, amid news that the government may levy a new tax on oil producers.

According to reports, the government plans to levy a windfall tax on oil producers like Oil and Natural Gas Corp. Ltd (ONGC) as part of a permanent solution it is working on for moderating the spiraling retail prices of petrol and diesel. The tax, which may come in form of a cess, will kick in the moment oil prices cross US$ 70 per barrel.

Under the scheme, oil producers, who get paid international rates for the oil they produce from domestic fields, would have to part with any revenue they earn from prices crossing $70 per barrel mark.

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The revenues so collected would be used to pay fuel retailers so that they absorb spikes beyond the threshold levels, they said. This may be accompanied by a minor tinkering with excise duty rates to give immediate relief to consumers.

States too would be asked to cut sales tax or VAT to show a visible impact on retail prices.

Presently, the government levies heavy taxes which account for about half the cost of petrol and 40% of the diesel price. So, one of the possible ways for the government to reduce the rates is change the way in which pump prices are calculated.

The above rise in fuel prices is seen on the back of rising crude oil prices, which shot above US$ 80 per barrel. This is the highest level seen since November 2014. In the past one year alone, oil prices have surged more than 50%.

Also note that rising crude oil prices not only affect fuel prices, but also has many other repercussions for the Indian economy.

They can be a big worry for the Modi government as well.

While having a direct financial impact on foreign reserves. Rising crude prices would put a burden on energy subsidies as well.

Rising Oil Prices Could Burden Energy Subsidies

The country's energy subsidy burden has come down over the past few years. As per a report by the International Institute of Sustainable Development, the value of energy subsidies the central government doled out declined by 38%, from Rs 2.17 trillion to Rs 1.35 trillion between FY 14 - 16.

During this period, India lowered its overall subsidy bill with a steep 70% cut in Oil and Gas subsidies.

The factors that partially made it possible were

  1. Significant slide in global crude prices
  2. The government's reforms such as direct benefit transfer scheme for LPG and targeted kerosene subsidy.

Although subsidies given to the renewable segment have risen four folds, it still constitutes a miniscule 6.9% of the overall energy subsidies. This means that the lion's share of subsidies still favour fossil fuels rather than renewable sources.

However, electricity remains inaccessible to a sizeable population, and fossil fuel still dominates the energy mix in the country.

With rising oil prices, there will be increasing pressure to dole out more subsidies to keep the prices in check.

Moving on to news from stocks in the engineering sector. L&T share price was in focus after the company's construction arm bagged multiple orders.

L&T Construction's buildings and factories business won orders worth Rs 40.3 billion.

L&T said the company has secured an order from a government client for the design and construction of 1,125 residential towers of G+3 floors in Visakhapatnam, Prakasam, Guntur and Krishna districts in Andhra Pradesh.

The company also added that it won another order from a cement manufacturer for the construction of cement plants in Odisha and Andhra Pradesh on design and build model.

In addition, L&T said bagged another turnkey order from a government client in Patna (Bihar) to establish a cancer institute along with the supply, installation and commissioning of medical equipment

L&T share price ended the day up 0.9%.

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