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The Sensex fell 131.97 points to 28667.72 and the Nifty dropped below 8700, down 51.40 points to 8698.80. The broader markets also declined. The BSE Midcap and Smallcap indices fell over half a percent. With clarity emerging on FY16 subsidy sharing. The finance ministry on Wednesday communicated to the oil ministry that it will fully compensate oil marketing companies for Q4 under-recoveries of FY15. The finance ministry has agreed to pay Rs 5300 crore for under-recoveries of OMCs, exempting upstream oil companies from sharing the burden. the government will be paying the entire FY16 LPG subsidy through direct transfer, and upstream oil companies will be exempt from the same. But upstream PSU oil companies will have to share the entire under-recovery associated with kerosene. This scenario is in line with Goldman Sach's estimates for upstream companies, improving the cashflow visibility for OMCs as it forecasts no subsidy payment in Q4 for OIL/ONGC and the FY16 realization is further based in line with its estimate of USD 50/bbl. "We believe the above scenario would be modestly positive for OMCs as direct transfer of cash by the government would further reduce working capital requirements for OMCs, thus improving earnings and cashflow visibility. Currently OMCs are transferring cash to customer accounts, for which they are reimbursed by the government."
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