FII equity holding up marginally in April-June

Mumbai: Foreign institutional investors (FII) increased their ownership in India's biggest listed companies in the June quarter although they are net sellers of Indian equities so far this year due to concerns of steep valuations and weakening currency.

For 427 of the 500 firms in the BSE 500 index, which make up nearly 90% of India’s market capitalization, foreign institutional ownership increased to 20.83% by the end of June quarter from 20.77% in the previous quarter, according to data provided by Capitaline. However, this is lower than FIIs holding in these companies in the June quarter last fiscal which stood at 21.02%. 

Pramod Gubbi, managing director and head of equities, Ambit Capital, said, "Large cap companies have done well especially in the last quarter. So, FII holdings in these large companies have been high. Irrespective of the net selling in the domestic markets, their holdings in these large companies have appreciated the most which may have pulled up the average significantly. It is more arithmetic in nature." 

Gubbi said emerging markets across the world have seen outflow of FII money over the last few months. "Within that basket, they have sold India as well. The only reason, perhaps, specific to India is the stretched valuations leading FIIs to sell," he added. 

Year to date, FIIs sold Indian equities worth $584.25 million with an outflow of nearly $2.7 billion alone in the June quarter. In the same period, benchmark indices Sensex and Nifty jumped 10.09% and 7.49%, respectively.

According to Gubbi, FIIs are looking at other markets like China, Korea, Taiwan which are looking a lot cheaper at the moment. “These markets have been the biggest causality of the trade war fears and have fallen a lot more significantly in comparison to India. Except for mid and small caps, Indian benchmark indices are at an all-time high. There are not enough factors to compel FIIs to return to India again,” he said.

Equity strategists Ridham Desai and Sheela Rathi said in a 16 July note that emerging markets’ positioning of India is also at a multi-year low, and the level of trailing foreign portfolio investor (FPI) inflows suggest a bounce in FPI demand for stocks. "FPIs have also meaningfully trimmed exposure in mid-caps relative to large caps. Domestic equity assets to total assets is close to an all-time high," it said. 

The other possible reason is that although FIIs may be selling in secondary market, they could have been adding more through IPOs, said analysts. 

Amar Ambani, partner and head of research at IIFL Wealth Management Ltd said, “Possibly it could be due to the number of IPOs that were launched in this time. FIIs could be selling in secondary markets but may be pumping money into new issues. This may be one of the main reasons why FIIs holdings have increased.” 

During the April-June period, four initial public offerings were launched which collectively raised Rs 4,850.48 crore. 

FII holdings increased mostly in banks and financials but reduced significantly in infrastructure companies in June quarter. 

Meanwhile, holdings of domestic mutual funds and insurance companies in the same set of companies rose to their highest level in at least 25 quarters.

At the end of June quarter, domestic institutions held a 11.87% stake in these companies. That was a rise from 11.68% at the end of March quarter and 10.77% a year earlier.

Domestic Institutional Investors bought a net Rs 67121.29 crore worth of stocks year to date with an inflow of Rs 37711.96 crore in the June quarter alone.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.