Foreign institutional investors are increasingly betting on the government taking steps to improve the financial health of oil marketing companies by hiking prices of fuels and offering some relief in the subsidy burden for standalone refiners.
They have been ramping up their stakes in state-run oil companies. In contrast, FIIs have pruned their exposure to Reliance Industries. Analysts at domestic brokerage house said this pruning could be owing to profit booking by FIIs.
In the case of Bharat Petroleum Corporation, FII holding had risen to 17.45 per cent at the end of the March 2006 quarter from 16.68 per cent at the end of December 2005 quarter.
Domestic mutual funds too hiked their stakes in BPCL to 1.8 per cent at the end of Q4 FY06 compared with 1.24 per cent at the end of December 2005 quarter.
Similarly, in the case of Hindustan Petroleum Corporation, FII stake had risen to 23.24 per cent at the end of Q4 FY06 compared with 23 per cent at the end of Q3 FY06.
Domestic mutual funds had seen their stake rise to 2.87 per cent at the end of March 2006 quarter compared with 2.31 per cent at the end of December 2005 quarter.
In contrast, FII stake in RIL had fallen to 21.35 per cent in March 2006 quarter compared with 22.2 per cent in the December 2005 quarter.
Oil marketing companies are estimated to be losing Rs 8-10 a litre for petrol, while for kerosene under-recoveries are pegged at Rs 16-17 a litre.
The government is expected to announce a price hike for auto fuels shortly and that is expected to only partially offset the difficult conditions for OMCS.
However, if prices of petroleum products are not raised, it is understood that under-recoveries for OMCs could reach Rs 73, 000 crore (Rs 730 billion) in FY07.
Standalone refiners such as Chennai Petroleum have also seen FII stake reach 14.54 per cent at the end of Q4 FY06 compared with 12.64 per cent at the end of December 2005 quarter.
In the case of Bongaigaon Refinery, the FII stake had reached 1.55 per cent at the end of Q4 FY06 compared with 1.15 per cent at the end of Q3 FY06.