Shares of (OMCs) reversed morning gains to trade in the red in the morning session on Friday, March 27, as the elevated crude oil prices outweighed the excise duty cut announced by the government earlier today.
PSU oil stocks, namely Indian Oil Corporation (), Hindustan Petroleum Corporation Limited () and Bharat Petroleum Corporation Limited (), traded up to 2% lower at the time of writing this report.
All three OMC stocks had gained in the opening deals after the on petrol to ₹3 a litre and exempted diesel, as it looks to neutralise the losses for these PSU companies from surging crude oil prices without raising retail prices.
BPCL shares had emerged as the top gainer, rising 5%. It was followed by HPCL, which gained almost 4% and IOC, which was higher by 2%. However, all PSU stocks erased gains and were down 1-2% now.
Why did OMCs reverse gains?
OMCs witnessed a relief rally as the government’s excise-duty cut on petrol and diesel was seen as a near-term positive for HPCL, BPCL and IOC; however, analysts believe that duty reduction only partly offsets the hit from high global oil prices.
While the headline looked supportive at the open, investors soon realised that this does not materially reset earnings expectations in one stroke, said Harshal Dasani, Business Head at INVAsset PMS.
Globally, since the United States and Israel launched military strikes against Iran on February 28, triggering retaliation from Tehran. Even as US President Donald Trump said talks to end the war with Iran were going well and that he would pause attacks on the country’s energy plants for 10 days, Brent crude prices remained elevated at $107/barrel.
Rating agency ICRA, in a note on Thursday, had said if the average crude oil price goes up to $100-105/bbl, fuel retailers would incur a loss of ₹11 per litre on petrol and ₹14 per litre on diesel, respectively, according to a PTI report.
Despite the spike in international prices, retail pump rates have not been changed, putting a strain on the finances of oil companies.
Additionally, weakness in the Indian stock market also pressured the oil . Conflicting signals emanating from the US and Iran have diluted hopes of a quick resolution to the conflict, which weighed on investor sentiment and raised fears that oil prices could remain higher for longer.
“For OMCs, the core issue is that crude is still high, currency pressure is worsening import costs, and the relief offered by the excise cut is limited relative to the scale of margin pain. That is why the market treated the move as tactical support rather than a structural turning point,” Dasani said.
Impact of excise duty cut on OMCs
Meanwhile, assessing the impact on the OMCs, Deven Choksey Research said that the government’s move is a strategic fiscal shield. “It prevents a retail fuel shock while stopping the from falling into a 2022-style earnings abyss.”
Prior to this cut, OMCs were looking at losses of ₹11/litre on petrol and ₹14/litre on diesel at $105 crude. The excise cut ( ₹10) effectively neutralises these losses, allowing OMCs to maintain a near-breakeven or slight positive margin without raising retail prices, said the brokerage. “This move floors the downside, protecting the dividend-paying capacity of IOCL, BPCL, and HPCL.”
ICICI Securities has baked in at least two more months of impact for the OMCs in its revised EPS estimates (Apr–May’26), which drives a material 44/52/76% downgrade in earnings for FY27E for IOCL/BPCL/HPCL.
While retail margins are under pressure, the rapid rise in crude prices creates significant valuation gains on the 65-day commercial stock held by OMCs, providing a temporary cushion to Q4FY26/Q1FY27 results, said Deven Choksey Research.
Impact of excise duty cut for government
The relief to consumers comes at 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, estimates the brokerage.
Union Minister for Petroleum and Natural Gas , on Friday, hailed the Prime Minister’s decision to take a hit on the government’s own finances again to safeguard the Indian citizen from rising global energy costs.
According to the Minister, “prices have increased by around 30%-50% in South East Asian countries, 30% in North American countries, 20% in Europe and 50% in African countries.”
Puri noted that the faced two distinct choices in the wake of this international price spike: “either increase prices drastically for citizens of Bharat as all other nations have done or bear the brunt on its finances so that Indian citizens are insulated from international volatility.” To further manage the situation, the government levied an export tax as international prices of petrol and diesel skyrocketed.
India is the third-largest oil importer in the world.
(With inputs from ANI and PTI)
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