BPCL was the top loser on the 50-share Nifty, falling 3 per cent to Rs 337.45 at 11.40 a.m. HPCL was down 2.75 per cent while IOC traded 1.9 per cent lower.
The sharp selling in these firms came after Petroleum Minister S. Jaipal Reddy said there was no immediate plan to increase fuel prices. The announcement left investors disappointed, who were expecting a price hike as early as today.
On Wednesday, the Petroleum Ministry had sent a comprehensive note to the Cabinet Secretariat listing various options for increasing the prices of diesel and LPG. Investors were expecting a steep hike in petrol prices as the monsoon session of Parliament ends today. State-run oil marketing companies are losing Rs 550 crore everyday as under-recoveries on account of higher crude prices in the global markets.
Oil marketing firms are not compensated for petrol sales because the government had decontrolled petrol price in June 2010. The government is also likely to push for a hike in other fuel products, including diesel, soon.
An increase in fuel prices is necessary to cut down government's subsidy payout as state-owned oil firms are projected to lose Rs 2 lakh crore on selling fuel below cost in the current fiscal. As per present policy, the government will have to make good half of it by way of cash subsidy.
Oil firms are currently losing Rs 1.37 a litre on petrol, Rs 17 a litre on diesel, Rs 32.7 per litre on kerosene and Rs 347 per cylinder of domestic cooking gas.
Prices of diesel as well as LPG and kerosene have not been increased since June last year, although the cost of production has jumped nearly 28 per cent, industry sources earlier said.