Foreign Institutional investors (FIIs) have been consistently offloading their holdings in government owned oil and gas companies. FII?s holding in most of the oil and gas companies has come down during the last five quarters ending June 30, 2007, despite the Bombay Stock Exchange (BSE) Oil and Gas index witnessing a rise of 2,707.68 points or 55.04% during the same period.

Market experts opine that the Government?s indifference towards oil marketing companies with regards to a hike in petroleum prices domestically, at a time when the global crude oil prices saw a steep rise, has raised concern among the investors, specially the FIIs, about the earnings potential of these companies.

?The oil and gas sector is highly regulated, and as a result of this, in spite of global crude prices going up, the government did not allow domestic prices to rise. This affected the earnings of oil companies,? said Gautami Desai, fund manager, UTI mutual fund (MF). ?So when the investors were not getting their valuations, they simply sold off,? she added.

Like for example, FII holding in the government owned Bharat Petroleum Corporation Limited (BPCL) has come down from 17.20% in the first quarter ended (Q1FY07) to 12.09% in Q1FY08, which is a dip of around 5.11% .

Jaspreet Singh, assistant vice president – research, Prabhudas Lilladher, said, ?Despite the government issuing bonds in the second quarter of FY07, oil companies still suffered losses. Besides this, in spite of the markets being at historical highs, the earnings for these companies were relatively low. This was a concern for investors and as a result the FII holding came down.?

Similarly the FII holding in Hindustan Petroleum Corporation Limited (HPCL) has come down from 23% in Q1FY07 to 13.5% in Q1 FY08, a dip of around 10%. Interestingly mutual funds (MFs) have increased their holdings in HPCL to 7.8% in Q1FY08 from 3% in Q1FY07. Like wise in Oil and Natural Gas Corporation of India (ONGC), FII exposure has dipped by almost 1%, from 9.43% in Q1 FY07 to 8.67% in Q1FY08. However, FIIs have increased their holdings in Reliance Petroleum Ltd (RPL), the refinery company from the Reliance Industries Ltd (RIL) stable, to 3.05% in Q1FY08 from 2.64% in Q1FY07.