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FIIs holdings in oil PSUs hit multi-year high

Foreign institutional investors (FIIs) have remained bullish on the state-owned oil marketing companies (OMCs) raising their stake for the fourth straight quarter ended December 31, 2014.

Their holdings in Hindustan Petroleum Corp Ltd (HPCL), Bharat Petroleum Corp Ltd (BPCL) and Indian Oil Corporation (IOC) have hit multi-year highs in October-December, 2014 quarter (Q3FY15).

The overseas investor’s holdings in HPCL and BPCL have touched eight-year high, while their stake in IOC at highest level since March 2001.

A sharp fall in crude oil prices and complete de-regulation of diesel prices seem to have sparked a renewed interest in stocks of OMCs among the overseas investors.

The current fiscal witnessed a series of positive developments. A stable/growth oriented government, free fall in crude prices and diesel decontrol has totally changed the terrain.

In HPCL, FIIs increased their stake by nearly 5 percentage points to 18.92% in December quarter against 14.10% as on September 30, 2014. They held 10% stake in the company at the end of December 2013 quarter.

HPCL stock, the largest gainer among the pack, has outperformed the market by surging 22% from Rs 483 on September 30, 2014 to Rs 589 on BSE till yesterday. The benchmark index S&P BSE Sensex gained 3% during the period.

The top funds that have stepped up buying in HPCL include National Westminster Bank PLC as Trustee and Merrill Lynch Capital Markets Espana S.A., the latest shareholding pattern data shows.

In BPCL, the overseas investors hiked their holdings by 2.6 percentage points to 15.20% from 12.57%, while in IOC to 2.61% from 2.45% in the September 2014 quarter. They held 10.14% stake in BPCL and 2.13% in IOC at the end of December 2013 quarter.

Domestic institutional investors led by insurance giant Life Insurance Corporation of India have reduced their stake in these companies during the recently concluded quarter.

Quarter FIIs stake in % DIIs stake in %
Dec’2013 10.14 9.99 2.13 17.63 22.64 4.41
March’2014 11.37 10.56 2.21 16.75 22.11 4.79
June’2014 12.23 12.50 2.41 15.90 20.46 4.58
Sep’2014 12.57 14.01 2.45 15.78 20.03 4.58
Dec’2014 15.20 18.92 2.61 13.96 16.56 4.41
Source : Shareholding pattern/BSE

Meanwhile, the OMCs are expected to report profits buoyed by lower interest costs which has been a drag on profitability for quite some time.

Analyst on an average has expected these three companies will post a combined net profit of Rs 1,596 crore in Q3FY115 against net loss of Rs 4,129 crore in Q3FY14. They remain positive on state-run upstream companies as subsidy reforms get implemented on the back of an improvement in production outlook.

“Oil under-recovery (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 at $ 80/bbl and INR-USD 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 in a report.


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