LIC adds 40 mn ONGC shares in 50 days; stock price slips 10%!
Munira Dongre 15 December 2010

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. 

1 decade ago
LIC has been raining money on large IPOs and by virtue of the large cash surplus its sitting on, rescuing many a issues and scrips who wouldnt otherwise find takers. Its money power at play. On the one hand, LIC needs big issues to invest its money as it invests for really long time periods and return expectations are modest given the size of investments. On the other, if it is not taking independant decisions , it runs the risk of going the fannie freddie way once the secular bull run in india ends, be it now or few decades later. as long as indians keep pouring money into LIC, it will be able to support even its bad investments. When the tap runs dry, the skeletons will be out of the closet. Personally, investments in companies like ongc,ntpc,nmdc will be profitable to lic in the long run as it has the money power to stay put. but giving out money to people like jindal and reliance , well as long as lic keeps the support going, no issues, the day lic pulls its hands back, these guys can cause huge losses. lic is a market maker. to that extent it even tries and keeps control of stocks with high weightage .
1 decade ago
But how the LIC increased their holding then ? There needs to be an answer.
1 decade ago
Good analysis.
Is LIC going the UTI way ?
1 decade ago
LIC has a record of coming to the rescue of Cental Govt whenever the situation warranted. During the Harshad Mehta time or in 2008 when FIIs enmass left India as an institutional investor both LIC and SBI purchased shares to shore up the market. Is history repeating in the case of ONGC?
1 decade ago
Great observation!
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