FII stake in top Indian firms continues to rise

Mumbai: Foreign institutional investors’ (FIIs) stakes in top Indian companies rose to their highest level in at least six-and-a-half years, as they bought into state-run oil marketing companies, which are expected to benefit from a sharp fall in crude oil prices and the government’s decision to deregulate diesel prices.

A Mint analysis of 46 of BSE 100 companies that have announced their shareholding pattern at the end of December 2014, and for which comparable data was available for previous 25 quarters, showed FII holdings in these companies rose to 17.80% on an aggregate basis, the highest since the quarter ended June 2010. FIIs held 16.88% and 16.74% in these companies at the end of September 2014 and March 2014 quarters, respectively. To be sure, a number of companies are yet to declare their shareholding pattern as at the end of 2014.

Aggregate FII holdings in 34 of 50 Nifty firms, which have declared their shareholdings for the quarter ended December, rose to 20.74%, again the highest since June 2010, from 20.36% at the end of September 2014.

FIIs had pumped in a net of $2.35 billion in Indian equities in the October-December quarter, which took their investments to $16.2 billion for the year 2014.

FIIs raised their holdings in state-run refiners Hindustan Petroleum Corp. Ltd (HPCL), Bharat Petroleum Corp. Ltd (BPCL) and Indian Oil Corp. Ltd (IOC) to 18.83%, 15.2% and 2.61%, respectively, from 14.01%, 12.57% and 2.45% at the end of September quarter. FII stake in HPCL and BPCL hit the highest levels since June 2006 and September 2006, respectively, while that in IOC reached its highest level since March 2001.

In a positive for oil marketers, the government stopped controlling the price of diesel starting October 2014, allowing it to be set by the market. A steep fall in global crude oil prices has also benefited these companies by reducing the under-recoveries on products such as kerosene and cooking gas where prices are still not linked to the market.

Brent crude tumbled 39.45% in the December quarter. In 2014, crude prices fell 48%, the most since the financial crisis in 2008, because of fears of a supply glut and weak economic conditions in Europe and China.

“The dynamics of the sector has changed a lot. The government has been quite proactive in carrying out reforms in the oil and gas sector. Also, crude has come down which brings down the under-recoveries,” said Devang Mehta, senior vice-president and head of equity advisory, institutional research, at Anand Rathi Financial Services Ltd.

Others seem to agree.

“Their ownership in this sector was very low. One of the main factors to influence FIIs in raising their stakes was that the new government was doing quite a bit on the reforms front and it also triggered expectations of more such bold decisions, said Vaibhav Sanghavi, managing director, Ambit Investment Advisors Pvt. Ltd.

The sharpest increase in FII holding was seen in the case of Hero MotoCorp Ltd, where foreign investors hiked their stake by 500 basis points to 39.34%. A basis point is one-hundredth of a percentage point. The country’s largest two-wheeler maker had posted a forecast-beating 58.62% jump in its September quarter net profit to ₹ 763 crore. It was the highest quarterly profit figure for the firm. FIIs upped their holdings in nine financial firms in the previous quarter, but at the same time cut their stake in seven such firms.

Of the 21 companies in which FIIs hiked their stake, 10 were state-owned companies.

“The business environment has changed. It is now more conducive for overall state-owned firms overall to do better, There is no conclusive evidence still though, but FIIs seem to be opting for PSU (public sector undertaking) companies as well along with private companies,” added Mehta of Anand Rathi.