Fidelity, Aberdeen drawn to gas retailers as India cleans up

Fidelity Investments and Morgan Stanley Investment Management have increased exposure to Indian city-gas retailers, as Prime Minister Narendra Modi's emphasis on clean fuels burnishes the outlook for the industry.

The demand from investors has been so strong that Indraprastha Gas, which supplies to homes and vehicles in New Delhi, raised the cap on foreign ownership to 30 per cent from 24 per cent, and may increase it again to almost half, Managing Director ES Ran ga nathan said. The largest citygas distributor Gujarat Gas, where Aberdeen Asset Management Plc is the biggest non-state investor, and Mahanagar Gas have also seen an increase in offshore holdings.

"Foreign investors who were investing in China are now looking more on India," Ranganathan said. "Everyone has an India fund or an Asia fund or South Asia fund and these funds are investing in Indian city gas networks. When our market cap went above $2 billion, lots of funds started looking at us."

India's gas demand is about a fifth of China's due to weak domestic supply and poor infrastructure, though the government is trying to change this, according to Bloomberg Intelligence. Oil Minister Dharmendra Pradhan said last year the nation will lay 15,000 kilometers (9,320 miles) of gas pipelines over five years. Modi, who championed natural gas as the chief minister of Gujarat state, has stepped up measures to improve air quality in cities by giving priority to distributors such as Indraprastha Gas for accessing cheaper local gas.

Offshore holdings in Indraprastha Gas climbed to nearly 25 per cent as of March 31, from about 21 per cent a year ago, according to data available with the exchanges and compiled by Bloomberg. Fidelity acquired 579,367 shares, while Morgan Stanley Investment added 292,598, according to the most-recent exchange filings. Both fund managers didn't respond to emailed requests for comment.

Aberdeen Asset Management held about 4.6 per cent of outstanding shares in Gujarat Gas as of end-April. Foreign holdings in the company have climbed about 3 percentage points to 15.4 per cent in the past year.