In the latest move by the government to manage its fiscal deficit and support oil marketing companies (OMCs), the price of LPG (liquefied petroleum gas) was raised by ₹ 50 per cylinder, and the excise duty on petrol and diesel was increased by ₹ 2 per litre. These changes have led to a surge in the OMC share price of major oil marketing companies like HPCL, BPCL, and IOCL, with shares rising up to 4%.
Let’s dive deeper into how these measures are expected to impact OMCs, why their stock prices are rallying, and what it means for investors in FY26.
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The government’s strategy to offset LPG losses
The government’s recent decision aims to balance the losses OMCs are facing due to selling LPG at a subsidized rate. The ₹ 50 price hike in LPG cylinders is expected to help reduce these losses by about ₹ 10,000 crore.
For OMCs, this is a much-needed boost, especially considering the massive losses they have incurred in recent years. According to Citi Research, this increase is expected to cut LPG under-recoveries significantly, with losses potentially decreasing to ₹ 20,000 crore in FY26 from ₹ 41,300 crore in FY25.
Here’s a breakdown of the LPG price hike:
| Cylinder Type | New Price (Delhi) |
| Ujjwala Scheme Beneficiaries | ₹ 553 |
| Other Customers | ₹ 853 |
The hike in LPG prices comes at a time when global crude prices are softening. As crude prices have fallen to $60–$65 per barrel, OMCs are expected to recover ₹ 9,000 crore through this domestic LPG price hike. The overall impact on OMC margins is expected to be positive as the companies adjust to higher global crude prices and improved local fuel margins.
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The excise duty hike and its implications
In another move to boost fiscal revenues, the government increased the excise duty on petrol and diesel by ₹ 2 per litre. This was done to offset the LPG losses and ensure a more balanced fiscal position. While this excise hike won’t affect retail fuel prices, it provides OMCs with the flexibility to adjust the prices of other fuel products, which should help improve their margins.
At the same time, automotive fuel margins remain strong, with gross marketing margins (GMM) for OMCs still hovering around ₹ 12 per litre, well above the historical average of ₹ 3.5 per litre.
Despite the rise in excise duties, analysts believe the OMC share price rally is justified, as the improved margins from fuel sales will likely offset the short-term impact of the excise hike. As HSBC and Citi report, while the risk perception remains slightly elevated, OMCs are still in a favorable position in terms of profitability.
Market reaction to the OMC price adjustments
As expected, OMC stocks surged following the government’s announcement. Shares of Hindustan Petroleum Corporation Ltd (HPCL) saw the highest surge, climbing 4% to ₹ 367.50, while Bharat Petroleum Corporation Ltd (BPCL) and Indian Oil Corporation (IOC) also posted solid gains.
These increases in stock prices reflect positive investor sentiment, buoyed by the government’s measures to improve OMC profitability in the face of global crude price fluctuations.
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Impact of global crude prices on OMC margins
The government’s move comes at an opportune time, as global crude prices have softened to $60–$65 per barrel, down from their previous levels of around $75 per barrel. This provides a cushion for OMCs to absorb the impact of the excise duty hike. With crude prices expected to stabilize around current levels, there could be room for retail fuel price cuts, further boosting OMC margins.
As JP Morgan and Motilal Oswal point out, the LPG price hike will further reduce under-recoveries, giving OMCs a better chance of improving their financials and balancing the excise duty hike.
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What’s next for investors?
For investors in OMC stocks, this news brings some optimism. The combination of LPG price hikes, the excise duty increase, and the expected rise in auto-fuel margins positions OMCs to recover some of the losses from the previous fiscal year. Moreover, if global crude prices continue to remain stable or decrease, there could be further potential for margin improvements and even a retail fuel price cut.
However, it’s important to remember that the government may continue to increase excise duties in the future or even reduce fuel prices, depending on market conditions. This means that while the short-term outlook for OMC share prices is positive, investors should stay cautious of potential risks.
Analysts are generally positive about the OMC outlook in the near term, with JM Financial and Antique maintaining buy ratings on HPCL, BPCL, and IOC despite raising concerns about long-term margin sustainability.
