Steel, oil & gas stocks see market cap erode by Rs 2.6 lakh cr on new taxes

“The recent imposition of new taxes or increase in tax rates in a few sectors may help the government garner additional revenues and fight inflation, but it will also hurt corporate profits and market capitalisation and India’s overall investment climate,” said Sanjeev Prasad, co-head at Kotak Institutional Equities.

“The bulk of our recent earnings downgrades are largely because of the new taxes. We can only hope these measures are for a limited duration and do not extend to more sectors.”

The government had on Friday levied ₹6 per litre export tax on petrol and aviation turbine fuel (ATF) and ₹13 per litre on diesel and imposed additional excise duty of ₹23,250 per tonne on domestic crude oil production.

Earlier, on May 21, the government had raised export duty on iron ore and a few steel intermediates, to increase their local availability and check price rise.

Analysts have cut estimated net profits of the metals sector and oil & gas sector in Nifty for 2022-23 by 34% and 12%, respectively, over the increased taxes.

Steel companies eroded nearly 20%, or ₹1.11 lakh crore, of the overall market capitalisation since May 23, while oil & gas stocks have erased nearly 7%, or ₹1.45 lakh crore, of investors’ wealth in the last three trading sessions.

International metal prices have also corrected recently with china metal price dropping to 16 months lows with rise in inventory.

Selloff in Steel, Oil & Gas Stocks

Shares of

and Oil India have fallen nearly 16% and 24%, respectively, since Friday while those of , and have declined over 25% since May 23. The Nifty50 index is down 3% from May 23 and gained marginally since June 1.

“Sentiment for the metal and oil sector has been impacted by the taxation decisions – windfall tax and export tax relating to the sector,” said VK Vijayakumar, chief investment strategist at

. “Even if the market rebounds smartly from the present levels, the steel sector is unlikely to participate in the rally,” he added.

The government’s recent tax decisions will reduce profits of upstream oil PSUs while downstream oil marketing companies (OMCs) will continue to make large losses on retail sales of diesel and for marketing margins on diesel and gasoline, unless the government reduces excise duties on diesel and gasoline by an equivalent amount and allow OMCs to retain the benefits, analysts said.

“The increased uncertainty to earnings of metal and oil & gas PSUs will hurt investment sentiment for PSU stocks further and potentially derail the government’s privatisation programme,” said Sanjeev Prasad, managing director of Kotak Institutional Equities.