Indian oil retailer shares up on fuel pricing hopes

MUMBAI Feb 4 (Reuters) - Shares in Indian oil retailers rose in a weak Mumbai market on Thursday, a day after a government panel recommended freeing pricing of fuels from administrative controls, a move that would improve earnings of the companies.

Shares in state-run oil-marketing firms Indian Oil Corp (IOC.BO), Hindustan Petroleum (HPCL.BO) and Bharat Petroleum (BPCL.BO) were up between 0.6-1.1 percent, while the main index .BSESN was down 0.8 percent at 0440 GMT.

The government sets retail prices of petrol, diesel, cooking gas and kerosene to help control inflation and protect consumers, particularly the poor, from sharp fluctuations in energy prices.

A government committee recommended on Wednesday that India deregulate prices of petrol and diesel, while increasing prices of kerosene and LPG. [ID:nSGE6120IX]

Oil Minister Murli Deora said the government consider the proposal, which if approved would ease pressure on government finances and improve earnings of oil retailers.

It was India's third such panel set up to fix anomalies in the fuel pricing system in the energy-hungry nation, and analysts were sceptical about implementation and viewed the rise in oil retailer shares as a knee-jerk reaction.

"Implementation of all proposals would mean hefty price hikes," Bank of America-Merrill Lynch analysts Vidyadhar Ginde and Himanshu Bindal said in a note seen by Reuters.

"That appears very unlikely given the prevailing high inflation and the very poor track record especially on LPG-kerosene price hikes," they said.

The price-setting policy affects profits of state-run oil marketing companies, which are forced to sell fuel at below-market rates. The government partially compensates these firms, usually by giving them bonds.

Any move to lift the government cap on fuel prices would help Indian energy major Reliance Industries (RELI.BO) and Essar Oil (ESRO.BO) resume retail sales of oil products, as no compensation mechanism is available for private firms.

Essar Oil rose 1.2 percent to 144.10 rupees, while Reliance Industries, which has a host of other operations including oil and gas exploration and refining, was down 0.3 percent at 1,030.70 rupees. (Reporting by Pratish Narayanan and Ami Shah; Editing by Ranjit Gangadharan)