Fitch Ratings outlook for Indian oil and gas is stable for 2011based on its expectation of no weakening of the ties between the government and its majority owned oil companies, which dominate the sector in the country.

The revision in outlook for the downstream public sector to 'stable' from 'negative' in June 2010 was based on Fitchs expectation that the government will maintain the oil sector reforms introduced in 2010

Fitch does not expect diesel price reform in 2011, as diesel has a higher impact on reported inflation, one of the government's key economic concerns.

India's surplus in refining capacity will continue with the commissioning of new facilities in 2011 and beyond. However, public sector refiners are partially protected by price controls. Private sector company, Reliance Industries (Reliance, BBB-/Stable), has significant export revenues, benefitting from more complex refineries than most international competitors.

What can change the Outlook to Negative?

1. If the linkages between the government and its majority owned companies weaken.
2. Any change in the governments rating outlook in either direction will lead to a similar change in its majority owned companies outlook
3. Private sector companies outlook could move to negative if debt-funded capex steps up significantly, or earnings are significantly lower than projected, due to depressed global economic conditions.

A positive outlook for private sector companies cannot be envisaged without an unanticipated sustainable step-change in profitability, given their focus on investment.