Oil And Gas Stocks See $5.4 Billion Foreign Exodus Ahead Of Gloomy Earnings

India's oil and gas stocks saw outflows worth $5.4 billion from global funds in the last three months of 2024 as muted third-quarter earnings loom for these giants.

Global funds sold oil and gas stocks worth $1.2 billion in December after having offloaded $1.5 billion in the previous month, according to the data from National Securities Depository Ltd.

This was the fourth consecutive month of outflows for the sector. In October, FPIs had withdrawn $2.6 billion, the largest monthly outflow from the oil and gas sector since March 2012, when the Securities and Exchange Board of India and the NSDL began tracking sector-wise FPI inflows and outflows.

From October to December 2024, Nifty Oil and Gas fell by 19.4%.

Index heavyweight and a downstream refiner, Reliance Industries, fell by over 17% during the same period. Mukesh Ambani's firm underperformed the market and posted negative yearly returns for the first time in the last ten years.

This comes ahead of the third-quarter earnings with both downstream and upstream companies expected to post muted numbers.

Refining margins are likely to fall below mid-cycle levels in the financial year ending March 2025 amid lower product cracks, regional oversupply, and lower benefits from price differences between crude varieties, according to Fitch Ratings.

"Ebitda for Indian upstream producers will ebb on subdued production and lower crude oil prices, although they have adequate balance-sheet buffers."

Foreign institutions have been net sellers of Rs 15,446 crore worth of Indian equities in December, according to data from the National Securities Depository Ltd. In 2024, foreign funds bought stocks worth Rs 427 crore, net of primary and secondary market.

FII selling is due to high valuations in the secondary market, according to V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. "In the primary market where the valuations are fair, FIIs have been sustained investors."

FIIs are likely to continue to sell going forward, so long as the dollar continues to rally and the U.S. bonds yield attractive returns, Vijayakumar said. "The dollar index at around 109 and the 10-year bond yield above 4.5% are strong headwinds for FII flows."

Automobile and auto components and fast-moving consumer goods were among the other sectors to witness heavy outflows. Meanwhile, information technology stocks continued to be the favourite among FIIs as they bought stocks worth $1 billion in December.