Foreign hand: FII share in BSE 500 rises

Overall FII portfolio value increases by three per cent to $274 billion in December 2010 from $267 billion in September 2010

The Indian markets may be spooked by the sheer magnitude of scams and macro-economic pressures. But according to the latest data available, foreign institutional investor (FII) ownership has seen an uptrend for the second consecutive quarter in December last year. Even as capital inflows abated by January 2011, net inflows of $10 billion in the third quarter saw foreign ownership in BSE 500 stocks rising to 18.2 per cent (from 17.8 per cent in the October-December quarter). It is the highest level that the FII ownership has touched since March 2008. While this share would be lower now with the $1.6 billion outflows (and the 11 per cent fall in the markets) this year, the overall FII portfolio value has increased moderately by three per cent to $274 billion in December 2010 from $267 billion in September 2010.

Sectoral preferences of FIIs seemingly suggest what’s in store for India’s key sectors. In the third quarter, foreign buyers dumped financials and industrials and started to accumulate consumer discretionary, information technology (IT) and energy sectors. Contrary to the September quarter that saw a crowding into financials, the December quarter saw a consensus trading out, on the back of a hardening rate environment and tight systemic liquidity. Many foreign capital found its way into sectors that could leverage global recovery, such as IT and energy. Consumer discretionary plays continued to attract investors, despite sustained high inflation. Stocks with the highest sequential rise in FII shareholding include Ansal Properties, PowerGrid, Manappuram General Finance, Bilcare and IndiaInfoline. In comparison, stocks such as KS Oils, Indiabulls Real Estate, Zuari Industries, ICSA and Amtek India have been the top FII sells this quarter.

Even as share of FII ownership rose in the last quarter, the share of insurance companies came down to 5.11 per cent, and that of domestic mutual funds touched 3.58 per cent. It is a well-known fact that Indian stocks are driven largely by foreign money, but this time around, domestic investors have taken a rather bearish view on Indian equities.

According to a report by Religare Capital Markets, domestic institutions saw their overall market share in the BSE 500 continue to drop on the back of high redemption pressures and regulatory headwinds.

The share of domestic mutual funds was down 17 basis points to 3.58 per cent (portfolio at $54 billion), while the insurance share fell to 5.11 per cent (equity portfolio at $77 billion), on dipping interest in unit-linked insurance products. Outflows from equity schemes continued, but moderated to $300 million (from $1.64 billion in the last quarter). Overall, the pace of outflows seems to have moderated slightly with $587 million worth of net inflows since November last year. Nonetheless, it is unlikely that domestic institutions will support the markets in coming months, despite rising cash levels.