OMCs Rally as Government Raises LPG Prices, Excise Duty on Petrol and Diesel

Policy Boosts Profit Outlook for Oil Marketing Companies Amid Softer Crude Prices

Shares of India’s major state-run oil marketing companies (OMCs)—Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), and Indian Oil Corporation (IOCL)—rallied strongly following the central government’s decision to raise household LPG prices and increase the special excise duty on petrol and diesel by ₹2 per litre. The policy shift is aimed at offsetting significant under-recoveries on domestic fuel distribution and is expected to materially improve OMCs’ profit margins, especially as global crude prices cool.

The increase in LPG prices by ₹50 per cylinder is anticipated to yield a recovery of approximately ₹9,000 crore for OMCs in FY26, sources close to the matter said. This will partially mitigate estimated LPG-related losses pegged at over ₹41,000 crore. Additionally, the Oil Ministry is reportedly preparing to seek Cabinet approval for a ₹32,000 crore compensation package, further cushioning the companies against previous fiscal damage.

• LPG prices raised by ₹50 per cylinder; excise on fuel up by ₹2/litre

• OMCs projected to recover ₹9,000 crore in FY26 from LPG hike

• ₹32,000 crore compensation package under discussion for OMCs

Stock Rally Driven by Margin Optimism and Falling Crude Oil Inventories

The market’s immediate response to the policy decisions was overwhelmingly positive. HPCL’s stock jumped 4 percent to ₹363, BPCL gained 2.8 percent to ₹281.25, and IOCL rose 1.7 percent to ₹130.3 on the NSE by 11:15 am. Analysts attribute the rally not just to the domestic policy moves, but also to the recent easing in global crude oil prices, which have slid into the $60–$65 per barrel range—down from the $75 per barrel average of current inventories held by these companies.

With improved cost dynamics, OMCs are expected to witness enhanced marketing margins in the near term. If crude remains stable in this lower price band, analysts believe OMCs could absorb the excise hike and even contemplate minor cuts in retail fuel prices to maintain public goodwill.

• HPCL up 4%, BPCL up 2.8%, IOCL up 1.7% in early trade

• Crude oil softens to $60–$65/bbl vs. current inventory average of $75

• Margin expansion likely if crude stability continues

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Brokerage Outlook Mixed: Margins High, But Risks Persist

Despite the positive stock movement, global brokerage firms issued cautiously optimistic forecasts. HSBC retained its “buy” ratings on all three OMCs but revised their price targets downward, reflecting heightened risk perceptions surrounding future volatility in crude prices and potential political intervention during the upcoming election cycle.

Citi Research emphasized that while the recent excise duty hike allows the government to better manage its LPG subsidy burden without raising retail fuel prices, the strategy does erode the “super-normal” margins that OMCs had been enjoying in the recent past. However, the brokerage also noted that the ₹50 LPG price hike would reduce LPG losses by approximately 23 percent and that the excise revision could generate an additional ₹33,000 crore annually for the government.

• HSBC maintains buy ratings, trims targets on risk concerns

• Citi says excise hike offsets LPG losses but cuts margins

• Government to raise ₹33,000 crore via fuel excise duty increase

Macro Factors and Demand Elasticity Remain Watch Points

While the OMCs’ immediate earnings outlook appears brighter, sector analysts continue to watch for volatility in global crude benchmarks, especially amid geopolitical tensions in the Middle East and fluctuating demand signals from major economies. Additionally, any upcoming political announcements regarding fuel subsidies or price control ahead of general elections could reshape the narrative.

Analysts also caution that retail demand elasticity could become an issue if prices are perceived as inching beyond affordability for lower-income households. The policy balancing act between fiscal management, inflation control, and consumer affordability will be critical for sustaining investor confidence in oil sector equities.

• Geopolitical risk and election-year pricing policy under watch

• Crude volatility may still threaten margin stability

• Price-sensitive demand may curb retail fuel consumption if hikes persist