Indian Oil, at a low, owns 52% of a refiner that is up 87%

Two Indian oil stocks. One at a 52-week low. The other up 87% this year.
The strange part: the first one owns 52% of the second.

Indian Oil controls Chennai Petroleum. Same economy, same crude, same rupee, same refining chain. Since the rupee broke to a two-month low in late September, Indian Oil has lagged the Nifty by 5 points and Chennai Petroleum has beaten it by 10.

They are not the same business.

Chennai Petroleum is a refinery. When diesel margins surge, as they have since the Gulf closed in February, it keeps them.

Indian Oil refines too, then sells at a pump price the government holds down, while every imported barrel costs more rupees. It is one of the largest dollar buyers in India, which is why the central bank opened a special dollar window for the three state fuel marketers this week.

This did not come out of an oil screen. Clargus started from the rupee event and ranked the listed names most exposed to it. The three marketers came back first. The subsidiary sat one hop away with the opposite sign.

Now a new variable. Washington's Russian diesel agreement puts the first real pressure on refining margins since February. The subsidiary's windfall is what is exposed. The parent's pump losses are what heal.

What would prove this wrong: if the stock is simply tracking the rupee and marketing losses are not the driver, the gap closes without any help from diesel. The number to watch is Indian Oil's marketing margin in the December quarter.

The hidden story is not oil prices. It is who gets to keep the margin.