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FIIs raise stakes in Nifty firms

FIIs raise stakes in Nifty firms
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First Published: Mon, Jan 18 2010. 11 45 PM IST

Updated: Mon, Jan 18 2010. 11 45 PM IST
Mumbai: Foreign institutional investors (FIIs), the key drivers of the Indian equity markets, have raised their stakes in two-thirds of the companies on the National Stock Exchange’s Nifty index in the past one year.
Overseas funds have raised their stakes in 24 out of 36 Nifty firms that have revealed holdings thus far. The Nifty index has a total of 50 firms.
The trend is almost similar for companies that form India’s most tracked equity index, the Sensex. Of the 30 listed firms on the Sensex, 21 have so far revealed holdings and FIIs have increased their stakes in 14 of them. All Sensex stocks are part of the Nifty as well. Listed entities are required to furnish details such as holding patterns to the stock exchanges every quarter.
A Mint analysis of 326 of the 500 top stocks of the Bombay Stock Exchange (BSE 500), which have declared holdings for the December quarter, shows that FIIs have increased holdings in 174 firms.
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The rise in FIIs’ stakes in Indian firms in 2009 is significant as they pumped $17.64 billion (Rs80,615 crore today) into equities after taking out $12.18 billion in 2008, a year hit by the worst ever credit crisis in the aftermath of the collapse of investment bank Lehman Brothers Holdings Inc. in September 2008. FIIs, in fact, continued to sell Indian stocks in January and February of 2009 as they needed money in their home markets to meet redemption pressure from investors. “FII inflows should continue,” said Pradeep Dokania, head of global wealth management, Merrill Lynch and Co. Inc.
“India’s financial markets are stronger than most of the emerging nations. As long as the fixed income instruments in developed economies continue to offer near-zero returns, foreign money will continue to flow into riskier assets in India,” said Ullal Ravindra Bhatt, managing director, Dalton Strategic Partnership Llp, an FII registered in India.
According to him, while the new FIIs will look for blue-chip stocks and investments through exchange-traded funds, existing FIIs will bet on smaller and mid-cap stocks as well. Of the Nifty stocks, FIIs have increased their stake the most in infrastructure financing firm Infrastructure Development Finance Co. Ltd during the past year with an 11.1 percentage point jump in shareholding to 43.89%.
Among BSE 500 stocks, Indiabulls Real Estate Ltd recorded the highest rise in FII holding —by 26.82 percentage points to 69.74%. Among the Sensex stocks, Maruti Suzuki India Ltd, India’s largest passenger car maker, has shown the maximum jump in FII shareholding, rising to 22.82% in December from 14.39% a year ago.
FIIs have pared stakes in 152 of 326 BSE 500 companies that have disclosed holdings so far. The overall investment pattern indicates their leanings towards sectors such as infrastructure, banking and finance.
Though a majority of FII inflows have been absorbed by primary market issuances such as qualified institutional placements (QIPs), the increase in FII stakeholdings in listed Indian stocks indicates that secondary market stocks too hold out prospects of higher valuations in the coming days, with many positive surprises in the earnings season.
QIPs are private placements of equity shares, debt or securities convertible into equity, by a listed company with qualified institutional buyers, both domestic and foreign. As the economy started pulling out of the slump, cash-strapped Indian firms raised money through the QIP route between April and December. Overall, 48 QIPs raised Rs33,780.77 crore in 2009.
“At least $13 billion of FII money has flown into primary market issuances during the past year, while the rest has gone towards listed stocks,” Bhatt said.
Brokerages are attributing the rise in FII activities to the steadfast growth recorded in industrial production over the past three quarters.
After recording a lower-than-expected 10.3% year-on-year growth for October 2009, the Index of Industrial Production (IIP) returned to a high growth trajectory in November with 11.7% expansion, a two-year high. The index had recorded a growth rate of 2.5% during the same month in 2008.
“We believe that the November figure holds testament to a durable industrial recovery,” a recent HDFC Bank Ltd report said. “We are raising our industrial growth forecast for FY10 from 8.7% to 9.2% and are pulling up our December 2009-March 2010 forecast to 12.2% against a flat growth during the same time last year. This is likely to pull up our FY10 GDP (gross domestic product) forecast to 7-7.2% from 6.8% at present.” Dokania agreed and said that if earnings and the economic momentum continue, FIIs will continue to invest in Indian markets. “Institutional investors are aggressively looking at emerging markets, and India has indicated a growth of 8% as compared to a 3-4% growth among other emerging nations.”
Overvalued zone
On the flip side, continued buying by institutional investors have sent Indian indices to an overvalued zone. Currently, the Sensex is trading at 21 times estimated earnings for fiscal 2010. Given this, analysts do not expect huge FII flows in the March quarter. FIIs have bought $1.61 billion worth of Indian equities net of selling so far in January.
“Secondary market valuations are a bit stretched. I am bullish on FII inflows but not so much on markets as a lot of foreign money may be absorbed by primary market issues,” said Bhatt. “Domestic institutional investors like insurance companies and mutual funds are known to be huge buyers during the March quarter and they have to support the market momentum.” According to fund flows tracker EPFR Global, during 2009, emerging market equity funds collectively posted inflows of $70 billion while their developed market counterparts recorded net redemptions of $61 billion.
Dokania of Merrill Lynch is bullish on infrastructure and financial markets. Bhatt said huge capital demands by infrastructure-related firms will attract more overseas funds. “FIIs are also bullish on engineering and construction, IT, pharma and banking,” he said.
Apart from Indiabulls Real Estate, Hindustan Construction Co. Ltd and Housing Development and Infrastructure Ltd (HDIL) saw big increases in FII holdings in the past year. For Hindustan Construction, the rise has been 19.22 percentage points and for HDIL 18.34 percentage points.
Among banks, Axis Bank Ltd has seen a 5.35 percentage point rise in FII holdings and IndusInd Bank Ltd 8.02 percentage points. LIC Housing Finance Ltd recorded a 6.03 percentage point rise in FII stakes.
Graphic by Yogesh Kumar / Mint
anirudh.l@livemint.com
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First Published: Mon, Jan 18 2010. 11 45 PM IST