RIL, ONGC shares falling sharply today, What should you do now?

What's leading to the fall?

• Reliance and ONGC shares fell sharply after the govt announced tax hike on petroleum products export.
• The govt has announced a ₹6 per litre tax on exports of petrol and aviation turbine fuel and ₹13 per litre on exports of diesel.
• The govt also slapped a ₹23,230 per tonne additional tax on domestically produced crude oil.
• Indian exporters will have to sell atleast 50% petrol in the domestic market before exporting.

India is importing petrol, and diesel amid a shortage

• As per reports, gasoline imports rose to about 13,000 barrels a day in the first half of June, a seven-month high.
• Diesel imports are also set to surge to the highest since February 2020 at about 48,000 barrels a day.
• One of the reasons behind the shortage is the elevated international product prices. 
• It has prompted India’s private refiners to boost exports. The result being state processors are now rushing to address extra imports.

Rationale behind Export tax?

• Spike in crude oil prices led to a massive gain of upto $45-47 per barrel - The government is looking to take a part of this abnormal gain.
• The oil refining companies, especially the private players, were having huge gains from exporting fuels to markets such as the US and Europe amid a surge in international oil prices. 
• The move is aimed to take away windfall gains accruing to producers from high international oil prices.
• The tax also came in place to meet the demand of the domestic market.

Impact on Reliance and ONGC

• Reliance stock fell more than 6% while ONGC stock tanked 12% post tax hike announcement.
• Reliance Petroleum exports 90% of its petroleum products.
• However, its Jamnagar refinery (Export-Oriented Unit) was set up as an SEZ, hence the impact should be limited.

Will petrol and diesel prices be impacted in India?

• Since the government announced a cut in excise duty on petrol in May, the domestic petrol and diesel prices have been steady.
• The petrol and diesel prices will not be impacted and are expected to remain low after today's decision by the government.

Analysts’ Calls

• According to analysts, it is too early to calculate the actual impact of the tax hike on Reliance.
• Reliance can always tweak which products to export in order to minimise impact.
• In a worst-case scenario, the stock may have an impact of 10%.
• Its super-abnormal profits of $25 may go down to $15-17 but even those are historically high for the last 10 years.