The decision to allow foreign institutional investors (FIIs) to increase investments in Indian companies beyond 24 per cent up to the statutory ceiling will not have much impact on the refining petroleum sector.
FII limits are capped at 26 per cent in the state-owned oil refineries, 74 per cent in case of oil marketing companies, 100 per cent for new refining units whilst in upstream oil sector the limit is upto 100 per cent.
Oil analysts indicate that for state owned refineries there will be no change unless the government divests its holding in these corporation.
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Government holds more than 80 per cent in Indian Oil Corporation, 49 per cent in Hindustan Petroleum Corporation (HPCL) and 66 per cent in Bharat Petroleum Corporation (BPCL).
The existing FIIs/OCBs holdings in HPCL is 12.5 per cent and in BPCL it stands at 15.5 per cent and in IOC it stands at 0.04 per cent.
S K Joshi, general manager, finance, BPCL, said "Technically, FII holding cannot go up unless government divests. Besides, there is very little free float in the market."
Oil analysts in Mumbai indicate that the FIIs are particularly disappointed with the slow pace of reforms in the oil sector.
There is also uncertainty about dismantling of administered pricing mechanism (APM). Though the government has indicated that APM will be dismantled in phases from March 2002, no clear directive has been issued, they point out .
Besides, redemption pressures for FII is very high. Moreover the recent terrorists attack on the US has sent wrong signals for investments. The oil stock have taken a beating in the last 10 days.
"Although the terrorists attacks have been an aberration, the business environment is not favourable as the government is still dilly-dallying on the issue of APM," analysts added.