FIIs raise stakes in OMCs to multi-year highs

Holdings in HPCL and BPCL touch eight-year high; that in Indian Oil Corp is highest since March 2001

Foreign investors increased their holdings in all three state-owned oil marketing companies (OMCs) to multi-year highs during the December quarter.

Foreign institutional investor (FII) holdings in Hindustan Petroleum Corporation (HPCL) and Bharat Petroleum Corporation (BPCL) have touched an eight-year high. That in Indian Oil Corporation (IOC) is the highest since March 2001.

The rise in stake comes amid a sharp fall in crude oil prices globally and internal diesel price deregulation.

HPCL saw the biggest increase in stake, by nearly 500 basis points (bps) to 18.92 per cent from 14.1 per cent in the previous quarter. HPCL was also the best-performing OMC stock, gaining 22 per cent compared to a three per cent increase in the benchmark Sensex. National Westminster Bank and Merrill Lynch Capital are some of the top funds that stepped up buying in HPCL during the quarter.

BPCL saw a 260 bps increase in FII holding to 15.2 per cent and IOC saw foreign investors raise their holdings to 2.61 per cent from 2.45 per cent in September 2014.

Even as FIIs raised their holdings in the OMCs, domestic institutional investors led by Life Insurance Corporation of India reduced theirs.

Meanwhile,  analysts expect OMCs to record earnings for the three months to December. On average, analysts projected an aggregate net profit of Rs 1,230 crore in the third quarter ending December, according to data compiled by Bloomberg. These companies had posted a net loss of Rs 4,198 crore in the same quarter of the previous year.

“Oil underrecovery (the genesis of all problems for OMCs) is likely to fall from Rs 140,000 crore in FY14 to Rs 40,000 crore in FY16/17 (assuming crude oil at $80/bbl and the rupee-dollar at 63). As a result, OMCs’ total debt/interest will reduce from Rs 1,325/78 billion to Rs 766/45 billion,” said Satish Mishra, analyst at HDFC Securities Institutional Research.