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FIIs sell bank, telecom, steel stocks; buy cement, construction

FIIs sell bank, telecom, steel stocks; buy cement, construction
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First Published: Thu, Oct 20 2011. 10 34 PM IST

Updated: Thu, Oct 20 2011. 10 34 PM IST
Mumbai: Foreign investors raised their stakes in about half of Indian companies in the September quarter, increasing the aggregate foreign ownership of firms marginally over the past quarter.
Though the aggregate foreign ownership has not changed much, sectoral preferences of foreign institutional investors (FIIs) have shifted. FIIs, the key drivers of Indian equities, pared stakes in banks, telecom and steel firms but raised them in construction and cement.
A worsening macro environment in India and rising global risk aversion makes the outlook for foreign inflows weak in the months ahead. Analysts said it could take several quarters for foreign ownership to regain the December 2010 peak, when overseas ownership of firms on the benchmark 50-share Nifty index on the National Stock Exchange crossed 17%.
Aggregate foreign ownership of 36 Nifty firms rose by 30 basis points (bps) to 15.8% in the September quarter. One bps is one-hundredth of a percentage point. The 36 Nifty firms are those which have declared their shareholding pattern and for which data is available for the past 20 quarters. Overall, 38 Nifty firms’ data is available. Listed firms are required to furnish details of their stake holdings to stock exchanges every quarter.
FIIs raised their stakes in 18 of 38 Nifty firms that have so far declared their shareholding pattern. The trend in the broader market is similar as 153 of 317 companies in the BSE-500 index that have declared shareholding pattern so far have seen a rise in foreign ownership. The BSE-500 index represents 93% of the total market capitalization on the Bombay Stock Exchange.
After pumping in a record $29 billion (Rs1.4 trillion) in Indian equities in 2010, foreign investors have largely shied away from Indian equities this year owing to concerns about policy inaction on new projects and a worsening economy that faces high inflation, rising interest rates and slower growth.
Net sellers
FIIs have sold $200 million worth of equities so far this year, net of purchases—the worst figures Indian markets have seen since the financial crash of 2008. The Indian markets have fallen 17.8% this year, making India the third worst performing market among the top 10 markets of the world by market capitalization.
Also See | Shareholding Patterns (PDF)
Rising fears of sovereign debt default in Greece and other parts of Europe are likely to make investors risk averse and shy away from emerging markets such as India, analysts said. A survey of global fund managers by Bank of America Merrill Lynch found a “abnormally high” proportion (39%) of fund managers overweight on cash. Fund managers were underweight both equities and commodities for the first time since February 2009, said the findings of the survey released on 19 October.
To be sure, fund managers may start deploying some of this cash in equities if a resolution to the European debt crisis appears in sight. Indian markets may benefit as fund managers have reduced their underweight position by 10 percentage points to 30% in October compared with a month ago. Indian markets are unlikely to see a sustained pick-up in foreign inflows though, analysts said. “Even if a rally occurs, it is likely to be short-lived,” said Dhiraj Agarwal, director of equities at Standard Chartered Securities (India) Ltd. Agreed Saurabh Mukherjea, head of equities at Ambit Capital Pvt. Ltd. He argued that both domestic headwinds and the fact that the European sovereign debt crisis are likely to go through a protracted and messy resolution would limit foreign inflows and gains in Indian markets.
European haircuts
According to a 18 October note by Ritika Mankar, economist at Ambit, the cost of haircuts on account of European banks’ exposure to sovereign debt of the most indebted PIGS countries (Portugal, Ireland, Greece and Spain) would amount to around $200 billion even under optimistic assumptions—a figure that is roughly 3% of the combined gross domestic product of Germany and France.
Besides, as Stephane Deo of UBS pointed out in a 16 October note, even a 50% haircut on Greek bonds—proposed by Germany—would reduce the stock of debt only by 22%, inadequate to prevent a Greek sovereign default.
“While the expectations of global growth has come down, the Indian growth has been dented more although we will still grow faster than the developed world,” said Agarwal. Analysts have been downgrading both economic growth estimates and corporate earnings estimates consistently over the past few months. The consensus among economists is that growth will be slower than the average of 8.4% in the past five years.
“The social contract between businessmen and politicians is also seeing a change and in these uncertain times, foreign investors are wary,” said Mukherjea.
Banks, considered to be a proxy for the economy, have fared worse than other sectors in the September quarter, with FIIs reducing stakes by an average of 60 bps across banks. Steel companies facing low pricing power were the biggest losers with foreign investors paring stakes by an average of 140 bps.
Sectors such as construction and cement, which have been under-performers in the past, saw an average increase of 40-50 bps in FII holdings in the quarter. Among Nifty firms, Mahindra and Mahindra Ltd saw the biggest increase of 2.8% in FII holdings. Dr. Reddy’s Laboratories Ltd with a 1.5% increase in FII ownership and Hero MotoCorp Ltd with a 1.1% rise in FII holdings, were among the major gainers.
Axis Bank Ltd with a 3.5% drop and Hindalco Industries Ltd with a 2.6% drop in FII holdings saw the largest decreases in foreign holdings.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Thu, Oct 20 2011. 10 34 PM IST
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