Investors upbeat on oil; but LIC trims its exposure to OMCs

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Updated: April 22, 2016 10:48:22 AM

Amid a bearish outlook on crude oil prices at a time when most investors appear upbeat on oil marketing companies, LIC, which takes benefit of price swings in equities with contra-calls, has been trimming its OMC (oil marketing companies) exposure.

Amid a bearish outlook on crude oil prices at a time when most investors appear upbeat on oil marketing companies, LIC, which takes benefit of price swings in equities with contra-calls, has been trimming its OMC (oil marketing companies) exposure.

The run-up in the stocks of oil marketing companies in the last one year has prompted the insurance behemoth to book profit by exiting part of its holdings. The state-run insurance company has reduced its holdings in OMCs including HPCL, BPCL and MRPL by up to 258 basis points (bps).

While the insurer reduced its holding by half to 2.6% and 1.89% in HPCL and BPCL since March 2015, its stake in MRPL has come down by a percentage point during the period.

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The shares of the top three OMCs have rallied in the range of 18% to 33% in the last one year. The benchmark Sensex lost 9% of its value during the same period. The investor interest in the OMC space has intensified in the period with benchmark crude oil prices having come off by 32% during the period. They have also benefited from the deregulation in diesel prices since October 2014 that has led to higher earnings. In Q3FY16, five oil companies reported net earnings of `5,920 crore compared to total loss of `4,986 crore reported in Q3FY15.

On one hand while it trimmed its stakes in public sector refiners, LIC have been buying into stocks of consumption led companies. For instance during the last one year, it raised holdings in ACC and Ambuja Cements over 2 percentage points (ppt). Housing finance giant HDFC was also a favourite with the state insurance company by more than doubling its stake to 5.01%. LIC holding in Bharat Forge also went up by 2% in the last quarter, showed data filed with BSE

Country’s biggest portfolio investor mainly raised stake in companies whose stocks have beaten down in the recent past. Shares of Tata chemicals, Nestle India, Ambuja cements and HDFC had hit 52-week low in the end of February. Tata Chemicals has seen the highest increase in quarterly stake of LIC as the insurer upped the stake form 2.8% to 7.6% in March 2016.

Recently, LIC officials in media interactions revealed that the state run company has invested close to `2.7 lakh crore in equity and debt market during FY16 with the former accounting for about a quarter of this allocation. The biggest institutional investor in Indian equity market plans to raise its investment portfolio by about 10% to 15% in FY17, officials indicated.

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