BackFIIs trim stake in Nifty firms in March quarter
Foreign investors recast portfolios on dismal earnings outlook, disagreement over tax issues with government
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Foreign institutional investors’ (FIIs’) holdings in top Indian companies fell in the March quarter for the first time in six quarters as they recast their portfolios on account of the dismal earnings outlook and their disagreement over tax issues with the government.
A Mint analysis of 48 of the 50 members of the Nifty index for the three months to March showed the stake of FIIs, on an aggregate basis, dropped to 21.32% from 21.95% in the preceding December quarter—the first such decline since the quarter ended 30 September 2013.
FIIs cut stakes in 35 companies and raised it in 13. These are companies that have announced their shareholding pattern, and for which comparable data was available for at least 25 quarters.
To be sure, the stake of FIIs in these Nifty companies rose from 11.34% in the March 2009 quarter to 21.32% in the March 2015 quarter, indicating the steadily rising interest in Indian equities as Asia’s third largest economy finds its place as a key investment destination.
This study is also based on the number of shares held by FIIs, but does not consider their value.
The dismal quarterly earnings outlook, a row between foreign portfolio investors and the government over payment of capital gains tax and disappointment over the pace of economic reforms may have prompted FIIs to reduce their holdings.
“India is not the attractive story globally, unlike last year. There is a lot of hope, but nothing much has happened on the ground," said Rakesh Arora, managing director of Macquarie Capital Securities India (Pvt.) Ltd. However, the situation appears to be a temporary hiccup.
FIIs were net buyers of Indian equities to the tune of nearly $6 billion in the March quarter, the highest inflow in five quarters. Market participants say FIIs are simply rotating their funds—booking profits in some stocks while deploying them into others where they see significant value.
“FIIs seem to be churning their portfolios," said Deven Choksey, managing director and chief executive of KR Choksey Shares and Securities Pvt. Ltd. “They have been booking profits in some companies where the upside is limited, and they have invested in some companies where they feel there is a lot of headroom for stock prices to rise."
Among the Nifty stocks, FIIs cut their stake in Infosys Ltd the most in the March quarter—down 362 basis points to 37.96%. A basis point is one-hundredth of a percentage point.
FIIs also cut their stake significantly in Mahindra and Mahindra Ltd, Bajaj Auto Ltd, Tata Steel Ltd, ITC Ltd, Tech Mahindra Ltd and Ambuja Cements Ltd—between 212 basis points and 319 basis points. However, they raised their stake the most in Lupin Ltd—up 292 basis points to 34.69%.
FIIs also hiked their stake in small-cap firms in the March quarter, while trimming it a bit in the mid-cap space.
FIIs’ holding in 135 of 483 BSE small-cap firms rose to 5.43% in the March quarter from 5.36% in the previous quarter, while that in 154 of 270 BSE mid-cap firms fell to 13.29%—the lowest since the March 2013 quarter.
Among mid-cap stocks, FIIs cut their stake the most—by 1,200 basis points in Hathway Cable Datacom Ltd, and hiked the most—808 basis points—in Sintex Industries Ltd.
In the small-cap space, they reduced their stake the most in NIIT Technologies Ltd—by 653 basis points, and hiked it the most in Poddar Developer Ltd—717 basis points.
While FIIs trimmed stakes in Nifty stocks, domestic institutional investors (DIIs) and promoters raised their shares in these very stocks.
DIIs’ stake in the companies included in this study inched up to 11.85% from 11.81%, while that of the promoters rose to 46.76% from 46.6%.
“FII inflows have been positive for the quarter, even as the percentage of holding has fallen. This implies domestic investors are buying more, of incremental volume. It is not that FIIs have sold out, but they seem to have churned their portfolios," said Arora of Macquarie.
Other analysts concur with this view.
“Retail money has flooded the market in the last few months, and that money has translated into investment from mutual funds into equities. By that logic, FIIs’ holding came down a bit," said Saurabh Mukherjea, chief executive of institutional equities at Ambit Capital Pvt. Ltd.
Mutual funds have been receiving huge inflows from retail investors, and they pumped in ₹ 8,751.3 crore in equities in the March quarter. Also, retail investors have been actively buying directly in the secondary and primary markets. These figures are not available.
“I don’t think the trend will change much. If domestic investors continue buying aggressively, we may see FIIs’ stake going down more," said Arora.
Ashwin Ramarathinam contributed to this story.
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