Mumbai: Foreign institutional investors (FIIs), the major drivers of India’s equities market, have raised their shareholding in nearly half the top stocks over the past quarter.
Analysts and fund managers expect FII flows to increase and the stake of this class of investors to rise as faster economic growth burnishes the appeal of Indian equities.
Among 22 Sensex firms that have so far disclosed their shareholding pattern for the quarter ended 30 June, 12 saw a rise in the FII component.
The Sensex, the Bombay Stock Exchange’s (BSE) benchmark and India’s most widely tracked equities index, consists of 30 companies.
The trend has been similar for Nifty companies, with 16 out of 35 that have disclosed their shareholding pattern showing a rise in the FII component.
The Nifty index has 50 companies and all Sensex companies are a part of the Nifty.
A Mint analysis of 305 of the 500 top companies listed on BSE shows that FIIs have raised their stakes in 163 companies.
The 305 firms have declared their shareholding for the June quarter. The BSE-500 index represents 93% of the total market capitalization on the exchange.
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To be sure, there are concerns that excess capital inflows may fan asset price inflation and lead to currency market volatility. But analysts say FII interest remains strong.
The June quarter saw net FII inflows of $2.3 billion (Rs10,764 crore), as against a net inflow of $4.4 billion in the previous three months. Concerns over the debt crisis in the euro zone weighed heavily on investors in the past quarter, leading to FII flows into markets such as India.
India’s economic output is expected to grow 9.4% this year, according to the International Monetary Fund. Company earnings are forecast to grow at least 20%.
“The news about the domestic economy has been good so far, but unexpected surprises on the global front might lead to some outflows,” said Himanshu Varia, head of institutional sales at Asit C Mehta Investment Intermediates Ltd.
“There are no major issues and we have seen positive inflows over the past few weeks,” said Ajay Parmar, head of institutional equities at Emkay Global Financial Services Ltd, another Mumbai-based brokerage.
Both Parmar and Sanjeev Patni, head of institutional equities at Prabhudas Lilladher Pvt. Ltd, see strong FII interest in India.
“Whenever there is a correction, there are FIIs waiting to jump in,” Patni said.
Automobiles, banking and pharmaceuticals are the major sectors in which FII stakes have gone up.
“Auto and banking have seen strong growth in earnings driven by domestic growth. Valuations for these sectors were also attractive, which drove higher flows,” said Rajat Rajgarhia, director of research at Motilal Oswal Financial Services Ltd.
“Pharma has seen higher interest as investors have started seeing excitement by global pharma majors here,” he added.
The FIIs have pared their shareholding in sectors such as information technology, steel and construction.
“IT and construction are sectors that have done well and FIIs could be booking profits,” said Ullal Ravindra Bhat, managing director of the Indian arm of Dalton Strategic Partnership Llp, a global fund registered as an FII in India.
“Besides, given that Europe was in bad shape, there was some anticipation that margins would be hit (in the IT sector),” he added.
Among the Nifty firms, Tata Motors Ltd and Axis Bank Ltd have seen the largest rise in FII shareholding, with FIIs raising their stakes by 4.55% in Tata Motors and 3.14% in Axis Bank over the past quarter.
Hindustan Unilever Ltd, State Bank of India, Hero Honda Motors Ltd and Ambuja Cements Ltd are the other companies that have seen a rise of more than 1% in FII ownership.
In fact, the past four quarters have seen FIIs raise their stakes in Axis Bank, Ambuja Cements and Tata Motors consistently.
Tata Steel Ltd saw the largest drop in FII shareholding with a 4% fall to 15.5%. The other companies that saw substantial declines of over 2% in FII holding are Kotak Mahindra Bank Ltd and Jaiprakash Associates Ltd.
With the results of top companies expected to be in line with expectations, global cues would largely determine the magnitude of FII inflows, analysts said.
FII inflows in the first two weeks of July touched $1.7 billion net of selling. So far this year, they have invested $8.4 billion on top of $17.6 billion in 2009.
Graphic by Yogesh Kumar/Mint