Oil marketing companies (OMCs) plunged on Friday after the government announced a Rs 2.50 per litre cut in petrol and diesel prices.
Vikas Halan, senior vice-president at Moody's Investors Service, spoke to CNBC-TV18 about the impact of the price cut on the finances of OMCs.
"The situation after the cut in excise duty on petrol and diesel is much worse for the OMCs than the pre-deregulation ear. It is negative all across. The balance sheets of the OMCs are going to be quite a bit stretched now and even if earnings come back for them, the investor trust will be hard to win back," said Halan.
According to Halan, the government's move was a surprise and a step back from deregulation.
“Never expected the government to burden the downstream companies. Previously for subsidy burden the upstream companies were used because they would make more money when oil prices were going up,” he said.
According to him, "The government may announce some more measures for upstream companies also but the current measure is a bit more adhoc, less transparent and worse than what we previously had."
"However, the hope is that this could be a temporary measure and the government could find more long-term solutions that would be less taxing on the downstream companies," said Halan.