How will fuel price hike impact economy, market, oil cos?

The move to hike diesel prices and cap the number of subsidised cooking gas cylinders per household will help partly repair the government's and oil marketing companies' balance sheets. And now that the government has shown its commitment to addressing the subsidy issue, the Reserve Bank of India may considering ease benchmark interest rates a bit. However, on the flip side, the hike in diesel prices will push up inflation near term.

Here is what brokerages are saying about the likely impact of the decisions on diesel and cooking gas on the economy, market and specific industries like auto and oil marketing.

Kotak Securities:

This is a positive for the economy as a whole and a firm step towards the much talked about fiscal consolidation. The RBI will now be more confident on the government's actions and this opens up room for easing. However, it will have to factor in higher commodity (especially oil) prices after QE3 and might not be willing to cut rates on Monday (Sep 17). We expect the RBI will give dovish commentary and cut rates in October.

Deutsche Equities:

Although steps are incremental and still leave high amount of under-recoveries, we welcome this move as it partially allays lingering concerns over fiscal consolidation and policy inaction.  Recent urgency demonstrated by government in addressing economically exigent issues also raises the likelihood of government notifying FDI in multi brand retail soon. We believe that fuel price announcements will provide another boost to Indian markets and coupled with accommodative stance of global central banks, the ongoing tactical risk rally should continue in near term.

Motilal Oswal Securities:

Despite these measures, FY13 under recovery is still 21% higher than the FY12 under recovery of Rs 1.385 trillion. The hike in fuel price would have a direct impact of 81 basis points on headline WPI inflation. We expect HPCL  to benefit most among oil market companies due to a) very low valuation, trading at  price to book of 0.8 times FY13 estimated earnings and b) highest exposure to marketing losses due to its higher marketing to refining capacity multiple at 1.8 times

Jefferies:

Some roll-back remains a possibility. In the past there have sometimes been moderations in announced fuel price hikes due to political pressure. This remains a risk this time as well.

Goldman Sachs:

Industry (auto) demand mix could shift towards slightly higher petrol vehicles in the near term, potentially easing pressure on petrol segment utilizations, but offset by lower demand for higher margin diesel vehicles. This could also possibly signal the government's unwillingness to hike excise duties on diesel vehicles, and potentially a near-term positive for M&M due to its diesel-driven portfolio.