Moody's Investors Service pointed out that the recent Re 1 a litre hike in diesel price would reduce under-recoveries incurred by state-run oil marketing companies (OMCs) on sale of the fuel at below-market rates.

With this price hike, diesel prices rose a cumulative Rs 2.25 per litre since January, which translates into an Rs 18,000 crore decline in under-recoveries, the research agency said in a report.

The hike in diesel price combined with the declining global diesel prices over the past several months reduced the under-recovery level, at which diesel is sold, it said.

Reduction in under-recovery is credit positive for the three state retailers - Indian Oil Corp, Bharat Petroleum Corp and Hindustan Petroleum Corp, and for upstream firm Oil and Natural Gas Corp (ONGC).

Since January 2013, diesel prices in the global market declined about Rs 3.50 per litre, or 9 per cent. As a result, the under-recovery on diesel has now dropped to Rs 3 per litter versus Rs 9.00 in January.

The borrowings of the oil marketing companies will decline following the diesel price hike. OMCs borrow funds to meet the under-recoveries until the government reimburses them six to nine months later, the report said.