FIIs cut positions across sectors in Dec quarter

Overweight position hits a record at 400 bps, but cut in holdings suggests near-term cautiousness

If equity ownership trends for the December quarter are anything to by, foreign institutional investors (FIIs) continue to bet on a recovery in the economy. Though corporate India’s earnings have been propped by information technology (IT) services and pharmaceutical companies through the slowdown, foreign institutions are bullish on a domestic recovery.

Currently, FIIs own 56 per cent of the MSCI India stocks available to them for investment, after regulatory caps. They continue to be overweight on Indian equities, by a record 400 basis points compared to the MSCI benchmark (emerging market). But they have shown some cautiousness in the December quarter, reducing holdings in almost all sectors other than consumer discretionary. Equity strategists believe there is risk of a short-term sell-off in case of global risk-off trade. Despite fresh inflows of $6.5 billion in the quarter and $26.25 billion during 2014, foreign investors kept their ownership level at 20.3 per cent in the December quarter. The only sector FIIs increased their holdings in was consumer discretionary.

In its analysis of quarterly institutional ownerships, JPMorgan says FIIs are overweight on the financial, consumer discretionary and telecom sectors and underweight on IT services, energy and healthcare, compared to the MSCI India benchmark. Domestic institutions, meanwhile, are overweight on consumer staples, industrials and consumer discretionary. Through a 12-month period, FIIs increased holdings in telecom, utilities and healthcare, while they cut holdings in consumer staples, materials and energy.

In the December quarter, FIIs reduced their holdings significantly in Shriram Transport Finance, M&M, Tata Steel, Tech Mahindra, ACC, Cairn, Jindal Steel & Power, Adani Enterprises, Tata Motors and Sun Pharma. By contrast, domestic institutions remained underweight on IT services and healthcare compared to the Nifty benchmark. During the December quarter, aggregate ownership of insurance companies declined 10 basis points to 5.1 per cent, while mutual funds increased holdings by 30 basis points to 3.9 per cent.