OMC Stocks Reversal: Excise Duty Cut Fails to Offset Crude Price Surge

OMC Stocks Reversal: Excise Duty Cut Fails to Offset Crude Price Surge​

New Delhi – Shares of India’s leading oil marketing companies (OMCs) reversed morning gains on Friday, March 27, trading lower despite the government’s recent excise duty cut on petrol. The downturn reflects investor concerns that the measure offers only limited relief against the backdrop of persistently high global crude oil prices.

PSU Stocks Down as Crude Prices Remain Elevated​

BPCL shares emerged as the top gainer, rising 5%, followed by HPCL, which gained almost 4%, and IOC, which was higher by 2%. However, all three PSU stocks erased gains and were down 1-2% by the time of writing this report.

Excise Duty Cut: A Tactical Support, Not a Structural Shift​

The government’s move to slash excise duty on petrol by ₹3 per litre and exempt diesel was initially seen as a positive for HPCL, BPCL, and IOC. However, analysts believe the duty reduction only partially offsets the impact of soaring crude oil prices. “The headline looked supportive at the open, but investors soon realised that this does not materially reset earnings expectations in one stroke,” stated Harshal Dasani, Business Head at INVAsset PMS.

Globally, crude oil prices have surged almost 50% since February 28, triggered by military strikes against Iran and retaliation from Tehran. Brent crude prices currently stand at $107/barrel.

ICRA Warns of Losses Despite Excise Cut​

Rating agency ICRA had previously warned that if crude oil prices average $100-105/bbl, fuel retailers would incur a loss of ₹11 per litre on petrol and ₹14 per litre on diesel.

Limited Relief Amidst Margin Pressure​

Despite the spike in international prices, retail pump rates have not been adjusted, placing a strain on the finances of oil companies. OMCs are facing significant margin pressure due to the combination of high crude costs and currency pressures impacting import costs.

Assessing the Impact​

Deven Choksey Research noted that the government’s move is a strategic fiscal shield, preventing a retail fuel shock and protecting OMCs from a potential earnings abyss similar to that experienced in 2022. Prior to the cut, OMCs were projecting losses of ₹11/litre on petrol and ₹14/litre on diesel at $105 crude. The ₹10 excise cut effectively neutralizes these losses, allowing OMCs to maintain near-breakeven or slightly positive margins.

Downgrade in EPS Estimates​

ICICI Securities has revised its earnings estimates for FY27E, projecting a material 44/52/76% downgrade in earnings for IOCL/BPCL/HPCL.

Valuation Gains Provide Temporary Cushion​

Despite retail margin pressures, the rapid rise in crude prices creates valuation gains on the 65-day commercial stock held by OMCs, offering a temporary cushion to Q4FY26/Q1FY27 results, according to Deven Choksey Research.

Fiscal Impact​

The excise duty cut is estimated to result in a ₹1.5 lakh crore hit to the exchequer. Every ₹1/litre cut in excise results in an annual revenue loss of ~ ₹14,000–16,000 crore.

Government’s Strategic Response​

Union Minister for Petroleum and Natural Gas Hardeep Singh Puri highlighted the government's choice between drastically increasing prices for citizens globally or bearing the financial burden to insulate Indian citizens from international volatility. The government also levied an export tax as international petrol and diesel prices skyrocketed. India is the third-largest oil importer in the world.