FIIs shun index stocks, trim holding in half of BSE-100

Investment gurus always aver that it is not a good time to buy a market when too many global investors are excited about it.

By that logic, foreign investors stampeding out of a market could be a sign that it is time to start putting in your money there. The bearish outlook of foreign institutional investors on Indian equities is clearly reflected in the shareholding pattern of key companies.

Based on latest available data, FII holdings in 42 out of 71 BSE-100 stocks have fallen during the quarter-ended June. FIIs have trimmed their stakes in Sensex companies such as ACC, L&T, HDFC, ICICI Bank, BHEL, Bharti Airtel to name a few. FII holding in ACC (Sensex weightage: 0.67%) dipped by almost 6% during the quarter, in L&T (Sensex weightage: 6.88%) by 2.44%, in HDFC (Sensex weightage: 4.79%)by 1.53% and ICICI Bank (Sensex weightage: 6.66%) by 1.45%.

FIIs net sold Rs 14,969 crore or $3.7 billion worth of Indian shares during the April-June quarter. Net outflows of Rs 10,577 crore in June was the second highest in a single month this year. In January, foreign funds had pulled out Rs 17,226 crore. “The pace of FII outflows will slow down once macro fundamentals stabilise,” said the head of research of the Indian arm of a US-based brokerage.

A recent Merrill Lynch report says that rising inflation in emerging markets makes them more vulnerable to monetary tightening and slowing domestic demand. “The best combination for emerging market equities is rising commodity prices and falling EM interest rates; the worst is falling commodity prices and rising EM interest rates. Weaker global growth and higher inflation in emerging markets is raising the risk of the latter, which is why asset allocators have become much more cautious on emerging markets,” said Michael Hartnett, chief global emerging markets equity strategist at Merrill Lynch.

Another US-based brokerage, Citigroup Global Markets, has forecast an average 20% increase in earnings of Sensex companies this financial year. “Look for quality over quantity. Numbers will likely count a little less this time. Watch for profit and growth guidance, interest and cost pressures, order books and cancellations, funding and capital markets sensitivity, and body language,” said Citi in its recent report. Investment strategist Gul Tekchandani maintains that there is a higher probability of the market rising in the next 6 months, rather than falling. “It has been noticed historically whenever MSCI price-earning ratios in the past have come down to around 13, the markets see a bounceback of over 10%,” he said commenting on market trend.

Mr Tekchandani points out that select India-dedicated long only foreign funds have turned buyers at these levels. This is borne out by the rise in FII holdings in some Sensex companies. HDFC Bank, Infosys, Tata Steel, TCS and RCom were amongst those which saw a gain in FII holdings. HDFC Bank with a weightage of 3.76% in the Sensex, has seen FII shareholding go up by more than 2%. Other companies outside of the Sensex universe which witnessed a gain in FII shareholding include that of Cairn India(6.99%), JSW Steel (2.91%), Aditya Birla Nuvo (2.51%) and Idea Cellular (3.57%).