Mumbai: The recent rally in the equity markets seems to have been fuelled more by local investors than foreign institutional investors (FIIs)—the prime drivers of the Indian stock markets till early 2008.
According to data analysed by Mint, FIIs have in the three months to 31 March reduced their exposure to nearly seven of 10 Indian stocks among the top 500 companies by market capitalization on the Bombay Stock Exchange (BSE).
The 30-stock Sensex, India’s most widely tracked index, rose 0.63% in this period, after falling by 7.83% in the first two months of the year.
Also See Companies That Saw A Drop In FII Stakes (Graphic)
Among the BSE-500 firms, which account for at least 93% of India’s market capitalization, 348 had announced their latest shareholding pattern till Wednesday. Of this, 255, or around 68%, saw a sharp drop in FII holdings. All listed companies are required by law to furnish their shareholding pattern on a quarterly basis to the stock exchanges.
The trend among the stocks that constitute the Sensex and the broad-based 50-stock Nifty index on the National Stock Exchange is no different.
Forty-eight Nifty companies have so far disclosed their latest shareholding pattern; FII stakes have declined in at least 30. Similarly, 19 out of the 30 Sensex firms that have announced their shareholding pattern have seen a drop in FII holdings. Except for Jaiprakash Associates Ltd, all Sensex firms are part of the Nifty.
FIIs sold at least $13 billion (Rs65,260 crore today) worth of Indian stocks in 2008, after investing $17 billion in 2007. In 2009 so far, FIIs have sold another $849.2 million worth of Indian stocks.
However, some positive news such as improved auto sales and an upswing in equity markets across the world has seen the Sensex gain 15.42% in 2009, until Thursday.
Given FII bashfulness, analysts credit the upswing to retail buyers. “Institutions have bought more stock than over the past 12 months,” wrote Ridham Desai and Sheela Rathi of Morgan Stanley India Services Pvt. Ltd in a 21 April report. “However, retail speculators have remained the key drivers as evidenced by the high and rising share of intra-day trading in total volumes.”
Analysts and fund mangers also said that any fresh FII inflows will largely be restricted to large-cap stocks.
“They (FIIs) have realized that anything other than large-cap stocks is not going to be of much help to them,” said Ullal Ravindra Bhat, managing director of the Indian arm of Dalton Strategic Partnership Llp, a global fund registered as an FII in India. “Whatever new money is going to come will be concentrated in the top 50 stocks.”
However, that may be cold comfort if the past four quarters are anything to go by.
Of the 48 Nifty firms that have declared their shareholding pattern so far, FIIs have in the past four quarters pared their holdings in at least 10, some of which are large-cap firms.
These firms are Bharti Airtel Ltd, Mahindra and Mahindra Ltd, Oil and Natural Gas Corp. Ltd, Ranbaxy Laboratories Ltd, State Bank of India, Tata Motors Ltd, Punjab National Bank, Axis Bank Ltd, Cipla Ltd and Siemens Ltd. The first six are also Sensex constituents.
The biggest drop in FII holding among large stocks was in Suzlon Energy Ltd, which saw foreign investment go from 13.07% in the quarter ended 31 December to 8.66% in the quarter ended 31 March.
Next in line was Reliance Capital Ltd, from 24.06% to 20.43%, Punjab National Bank, from 18.3% to 14.86%, and State Bank of India, from 10.42% to 7.97%.
Engineering firm Larsen and Toubro Ltd and auto maker Tata Motors Ltd also saw a drop of 1.79 percentage points each in FII holdings during the period.
On the other hand, Maruti Suzuki India Ltd saw a rise of close to 5 percentage points in FII holding, while Grasim Industries Ltd, Hero Honda Motors Ltd and Unitech Ltd saw a rise of around 2 percentage points.
Graphics by Sandeep Bhatnagar / Mint