FIIs move away from state oil companies

Their losses are likely to increase this year, with spiralling crude oil prices and the burden of subsidies.

The uncertainty surrounding fuel pricing is taking a toll on foreign institutional investment (FII) in public sector oil companies.

In spite of FII inflows exceeding $9 billion (according to an Icra report) in the last quarter, FII investment in all the public sector oil companies, both downstream and upstream, has been diminishing.

For example, FII investment in Hindustan Petroleum Corporation (HPCL) in the quarter ending March 31 fell to 7.2 per cent, from 11.3 per cent in the quarter ended December 2009.

“The oil sector has an offside, as it could be range-bound in the next two years. In oil PSUs, particularly, there are concerns like rising expenditure and pricing. Thus, the FIIs have been shifting focus to sectors like steel and automobiles,” said Kishor P Ostwal, chairman and managing director, CNI Research, while terming the fall “significant”.

Last year, the combined underrecoveries of three oil marketing companies (OMCs) — Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and HPCL — were close to Rs 47,960 crore. The losses are likely to increase this year with spiraling crude oil prices.

In BPCL, too, FII investment came down to 7.97 per cent in the last quarter, from 8.9 per cent in the quarter ended December 2009.

“The government has been saying they will decontrol oil prices, but they have not done that so far, which could be the reason that FII investment has come down in these companies,” said Arun Kejriwal, director of research firm KRIS.

The FII investment in the three upstream public sector oil companies — Oil and Natural Gas Corporation Limited (ONGC), GAIL and Oil India Ltd (OIL) — have fallen, too.

The burden of oil subsidy is likely to increase on these companies as well, as they are required to share it with the OMCs.

In case of GAIL, the FII investment in the last quarter fell to 11.9 per cent, from 13.4 per cent in the quarter ended December 2009. In OIL, the FII investment in the previous quarter fell to 2.3 per cent, from 3.2 per cent in the quarter ended December 2009.

“Overall, there is a uncertainty surrounding the government policies, the subsidy sharing mechanism and opaque pricing policy. Thus, a large part of the investor community are not investing in these companies,” said Deepak Pareek, analyst, Angel Broking.

Also, the government is yet to take a firm decision on the Kirit Parikh report, which advocated decontrol of oil prices.