To buy more than 40 million shares since 30th September 2010, LIC would have had to pick up more than 8,00,000 shares a day; but the delivery numbers just don't add up

The September shareholding pattern of Oil & Natural Gas Corporation (ONGC) shows that Life Insurance Corporation (LIC) holds 3.1% or 66 million shares of the country’s biggest oil explorer. However, in a communication to the Bombay Stock Exchange on Tuesday, LIC said that it now holds more than 5% of ONGC.

LIC made its latest acquisition of 2.6 lakh shares of ONGC on 19th November, thereby increasing its total share in the company to over 5%. The mode of this buy was given as market purchases. It now holds a total 106,939,073 shares of ONGC compared with about 66,206,426 shares in September.

This means that between 30th September 2010 and 19th November 2010, LIC acquired a whopping 40,732,647 shares! The total average trading volume in ONGC shares in this period was 9,82,000 shares per day and the deliverable volume has been only 6,15,000 shares per day.

To add more than 40 million shares in 50 days, LIC would have had to buy more than 8,00,000 shares a day; but the numbers just don't add up. From the end of September to 19th November, the total deliverable volume was around 22 million shares. So how did LIC manage to amass 40 million shares?

The amazing part is that if these transactions were on the market, how come there has been little impact on the share price? At the end of September, ONGC shares were at Rs1,400 and on 19th November the stock price was at  Rs1,263—nearly 10% lower! Then, were a lot of these transactions off market? LIC should share these creeping acquisition secrets with the rest of the investor community.

Of course, since late November, ONGC shares have been rising ahead of its forthcoming follow-up public offer (FPO), but only after touching a low of Rs1,192. A couple of days ago, RS Sharma, chairman and managing director of ONGC, said in a television interview that he is hopeful of launching the FPO by mid-February. It is also considering a stock split and bonus. Foreign Institutional Investors have long complained about the low levels of liquidity in ONGC compared to other frontline stocks.

Investors and analysts believe that rising crude prices is good for ONGC’s net realisation, despite the increasing subsidy burden. Mr Sharma said that the best crude levels for the company are between $70 and $80. At current crude levels, upstream companies would have to shell out about Rs220 billion of subsidies, more than 80% of which will be borne by ONGC. The market is hoping that a likely hike in diesel prices will lower the subsidy burden for ONGC. The company is also expected to get compensation in lieu of royalty for Cairn India’s Rajasthan assets.