Data Focus . RIL effect: MF and FPI assets in petroleum, oil & gas swell in H1

Assets of mutual fund and foreign portfolio investors (FPIs) in petroleum and Oil & Gas sectors have appreciated by more than 79 per cent to ₹5.05 lakh crore in the first two quarters of the current fiscal. The value of their assets in these sectors stood at ₹2.82 lakh crore as of March 2020.

According to the latest SEBI data, mutual funds’ assets in stocks belonging to the petroleum sector increased by 60 per cent to ₹89,596 crore as of September 2020 from ₹55,969 crore in March 2020. The share of petroleum stocks in the overall equity AUM of mutual funds has increased to 7.68 per cent, from 6.23 per cent, during March-September period. MF assets in the Oil & Gas sector also increased marginally to ₹19,093 crore from ₹18,777 crore during this period.

The ‘RIL Factor’

Mutual Fund experts say that the spike in exposure in the petroleum sector is not on account of any large-scale fresh investments but primarily on account of Reliance Industries’ (RIL) stock price appreciation over the last few months.

“One of the largest stocks in the ‘Oil & Gas’ and ‘Petroleum’ sectors is Reliance. The increase can be predominantly attributed to the increase in the share prices of RIL, which have nearly doubled in the past 4-5 months,” Juzer Gabajiwala, Director, Ventura Securities, said, adding, “There is not much of a substantial increase in exposure by means of additional investments by the mutual funds.”

Thanks to multi-billion dollar deals, the share price of RIL has gone up by 143 per cent over the last six months. During April-October, the energy-to-telecom conglomerate signed deals worth ₹1.90 lakh crore to sell a part of its stake in Jio Platforms and its retail arm Reliance Retail Ventures to marquee global investors, including Facebook, Google, Silver Lake and Mubadala, among others. The company also completed the country’s largest ever rights issue of ₹53,124 crore during this period.

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Although the total AUM of mutual funds in the petroleum sector has increased substantially due to RIL’s stock price appreciation, mutual funds’ stake in RIL is quite low when compared to other public sector oil marketing companies (OMCs).

As of June 2020, mutual funds held 5.44 per cent in Reliance Industries out of which SBI Mutual Fund held around 1.45 per cent. In contrast, mutual funds held 16.38 per cent in HPCL, 13.66 per cent in BPCL and 18.19 per cent in Gujarat State Petronet.

FPI inflow

FPIs’ asset under custody (AUC) in the Oil & Gas sector nearly doubled to ₹3.97 lakh crore as of September 2020 from ₹2.07 lakh crore in March 2020 (Table 1.4). In addition to asset price appreciation, FPIs have also been active investors in the Oil & Gas sector. The sector is the highest recipient of FPI investment with a net equity inflow of ₹13,421 crore during April-September 2020 period.

The sector received a net inflow of ₹3,037 crore in FY20 and a net outflow of ₹490 crore in FY19.

“The higher FPI inflows can largely be attributed to the deal wins by Reliance Industries over the last several months although those inflows are for different businesses that Reliance has,” Ajit Mishra, VP-Research, at Religare Broking, said, adding, “Besides, the recovery in demand and crude oil prices aided flows for some of the oil exploring companies as well.”

Barring HPCL and IOCL, the stock price of all other oil & gas and petroleum sector stocks has increased since March 24.

As of June 2020, FPI holding in RIL stood at 24.15 per cent, while the portfolio investors held 29.15 per cent in Petronet LNG and 22.29 per cent in Indraprastha Gas.

“We expect this trend (of investments in RIL) to continue in the Indian markets as it remains one of the preferred destinations for FPI investment due to healthy long-term growth prospects,” Religare Broking’s Mishra said, adding, “Going ahead, liquidity and demand revival measures announced by RBI and the government will help sentiments to further improve.”

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