Deregulating petrol (gasoline) prices on 25 June is an important, bold and encouraging step for India’s fuel price reforms. We expect India to deregulate diesel prices in 2HFY11, which is critical to the sustainable growth of State-owned oil companies’ profitability. Both the Chinese and Indian governments have increased gas prices substantially in May. While the hike is mainly to offset the loss from imports of expensive gas by PetroChina, Indian gas companies, such as OIL and ONGC, can get true economic benefits from the gas hike.
The difference in percentage terms of state’s control in the oil sector, reserves base, and self-sufficiency ratio creates a higher pressure for the Indian government than the Chinese government to deregulate oil/gas pricing and rationalize energy consumption. Subsidies as a percent of government budget range from 1-9.3% in India, compared to lower than 0.8% in China.
The following Chart Shows the Comparison of Oil Sector in India vs China
While Indian oil stocks have risen 7% since 25 June, we believe further re-rating is possible. On the other hand, we believe the Chinese oil sector will continue to suffer from less transparency in pricing formula and more tax.
india is more better vs china