Oil shares soar as Congress Party wins Indian elections

Published on Monday 18 May 2009 21:33

CAIRN Energy shares jumped to their highest level in eight months yesterday, after the business-friendly Congress Party's decisive victory in the Indian elections.

Trading on the Mumbai Stock Exchange was halted for around two hours after shares surged on the back of the victory for Congress, which was already the leading party in the coalition government.

When trading resumed the Sensex, India's main share index, closed up 17 per cent.

Cairn closed 5 per cent higher in London as uncertainty over key talks with the Indian government were eased.

Scotland's largest independent oil company was propelled into the FTSE 100 after major discoveries in Rajasthan in 2004, with the fields set to deliver their first oil this year.

Although agreements over tax and land usage for a 580 kilometre pipeline to transport the oil to coastal refineries have already been struck, Cairn is still negotiating price agreements for the crude.

Analysts feared an agreement could be delayed by a change of government.

But during the weekend, the Congress Party increased its share of power while Murli Deora, petroleum minister in the previous cabinet who has played a central role in Cairn's negotiations, also retained his seat.

Nathan Piper, an Edinburgh-based analyst with Royal Bank of Canada, said there was a risk that a change in government could have stifled Cairn's negotiations.

"Cairn is speaking to the same people today as they were yesterday," Piper said.

"The risk was that a completely new government would be brought in, with completely new ministers in place and perhaps Cairn's negotiations with the government would be delayed.

"As it is, not only is it the same people, it is the same people with an increased majority."

The Congress Party was part of a broad coalition including several left-wing parties, which has delayed business friendly plans, including a controversial nuclear deal with the United States.

While Congress was favourite to win the election, there were fears the new government would be similarly hampered.

Analysts at Goldman Sachs said in a note to clients that the result was "almost a best case scenario" for the markets.

"There was a fear that an unstable government would ensue with a motley coalition, or that the eventual government would include the market-unfriendly Left parties. Such fears have now been alleviated."

A spokesman for Cairn declined to comment on the elections. He said: "We would never comment on any political party."

Cairn is set to update the market on progress towards first oil from its Indian fields at its annual general meeting in Edinburgh today.

Shares in the company ended up 118p at 2,454p, the highest closing level since September.