Mumbai: The holding of foreign institutional investors (FIIs) in Indian companies, exceeds that of domestic financial institutions, including mutual funds and insurance companies, retail and high net worth investors (HNIs) all put together. A study by Citigroup Research shows that FIIs hold around 22% of BSE 500 companies, up substantially from 12% in March 2001. The other groups of investors cumulatively have a 19.8% holding in these companies.
The value of FII equity holdings stands at $193 billion (Rs7.82 trillion). In comparison, equity assets held by domestic mutual funds are worth less than a fifth that amount at Rs1.51 trillion, data published by stock market regulator Securities and Exchange Board of India shows. Citigroup India’s head of research, Ratnesh Kumar, says in the report that the share of domestic funds has reduced in the past six years. An earlier analysis by Mint had shown that the holding of domestic retail investors in companies had progressively decreased in the past three years.
The increase in FII holding is not surprising. Between March 2001 and June 2007, they have pumped in $41.45 billion into Indian equities, and increased their Indian investment four-fold from $13.42 billion six years ago. This is because of higher allocations to India and the entry of new FIIs; the number of FIIs registered with Sebi doubled to 1,050 between March 2001 and June 2007. Recent data published by Sebi shows that there are another 3,336 registered FII sub-accounts. In addition, a large number of participants trade via participatory-notes.
Citigroup has further broken up the data on the basis of BSE’s market indices. FIIs hold 26.9% of the companies comprising the Sensex, and a lower 22.2% holding in BSE 500 companies. FIIs are known to prefer large, liquid stocks such as those comprising the Sensex.
So which sectors do India’s largest investor group prefer? Based on their latest holdings, FIIs are overweight on telecom companies, industrials, materials and financials, Citigroup points out. The overweight position is relative to the weight given to these sectors in the benchmark MSCI India index. They’re also marginally overweight (by about 120 basis points) on utilities and consumer products. Domestic mutual funds, on the other hand, are substantially underweight in telecom companies. While they share the same passion for materials and industrials, they’re much more bullish on consumer products. Both groups are negative on IT and energy companies.
Companies that have seen the highest increase in FII holdings in the six months till June 2007 include GVK Power and Infrastructure, Elder Pharma, Phoenix Mills, Ganesh Housing, and Provogue (India). In fact, the top ten among this list are all mid-cap companies. Companies that have seen the biggest fall in FII holdings include Himachal Futuristic and Hinduja TMT.