FIIs shy away from oil sector

Foreign institutional investors (FIIs) have shown signs of reducing their exposure to the oil sector as they fear the upcoming assembly elections in several states will dominate the decision-making process in the sector.

Analysts at foreign brokerage house said FIIs were of the view that with several assembly elections slated for this year, political considerations were showing signs of dominating the decision-making process in the oil sector.

Retail diesel prices, for example, were cut by in mid-February, which was in contrast to the global pricing of crude oil. It is reported that oil marketing companies (OMCs) are grappling with under-recoveries which exceed Rs 140 crore a day.

Although the government has issued oil bonds worth nearly Rs 24, 000 crore in financial year 2007, senior executives at foreign brokerage houses said FIIs were wary of any additional subsidy burden by the government on ONGC in financial year 2008, to compensate OMCs.

In the case of ONGC, FII shareholding was 8.67 per cent in March 2007 quarter compared with 9.11 per cent in December 2006 quarter. ONGC's subsidy burden in the first nine months of financial year 2007 amounts to Rs 12,356.01 crore, a rise of 44.5 per cent y-o-y.

Among downstream players, especially OMCs, FII stake in HPCL was 15.6 per cent in March 2007 quarter compared with 16 per cent in third quarter of financial year 2007. In IOC, FII stake was more or less flat at 1.9 per cent in March 2007 quarter on a sequential basis.

In RIL, an upstream player, FII holding at the end of the fourth quarter of financial year 2007 was 20.2 per cent compared with 20.68 per cent in the third quarter of financial year 2007.

The analysts said FIIs may be looking to cashing in some of their gains in the RIL stock price which has risen nearly 7.6 per cent over the past three months.