FII holdings in oil PSUs hit multi-year high

In the December quarter FIIs hiked their stake in HPCL to 18.92%, in BPCL in 15.20% and in IOC to 2.61%

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 %
ended	BPCL	HPCL	IOC	BPCL	HPCL	IOC
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.

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 n the third quarter ending December, according to data compiled by Bloomberg. These three companies had posted a combined net loss of Rs 4,198 crore in the same quarter of the previous year. 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.