In 2013, the information technology sector gained 10% in absolute weight in the MSCI India Index because of significant relative outperformance and the addition of Tech Mahindra. This makes it the largest sector for India.
In comparison, foreign institutional investors (FIIs) now appear underweight on the sector, as per EPFR Global. Relatively, a bulk of the weight shift has been taken out from financials as four companies have been deleted from the MSCI index.
Although FIIs appear more in sync with MSCI weights, incremental demand for financial names from FIIs may be found wanting. Domestic institutional investors (DIIs) in contrast have a much higher proportion of AUMs (assets under management) in financials, in sync with the local indices.
With local money flow still weak (DIIs have pulled out $18 billion over the last three years--2011-13--compared to FII inflows of $48 bn in the same period), the performance of a large component of AUMs could be tested for DIIs triggering weight-reduction.
Rising passive money (Exchange Traded Funds) should also exhibit such trends. We remain cautious on financials from a fundamental standpoint and ownership disconnects could be an added pressure.
FIIs continue to increase stakes across companies some pick-up in mid-capsThe October-December 2013 quarter saw stake increases by FIIs in three-fourths of BSE 200 companies, reflecting broad-based buying. The risk-on rally post the currency turbulence of Q3FY2013 was further boosted by expectations of a stable government after the summer 2014 elections. This has led to increased ownership levels for a number of mid-caps.
Most sectors saw positive inflows by foreign investors During the quarter ending December 2013, all sectors except healthcare and staples saw increases in FII ownership. IT, consumer discretionary and utilities saw the highest net buying by foreign investors.
Interestingly, FIIs increased stakes in 26 industrial companies during the quarter, signalling some rotation towards domestically-oriented sectors. This trend was seen in consumer discretionary (autos) and materials as well.
Larsen & Toubro, Cummins India, Adani Ports & SEZ, Crompton Greaves and Jaiprakash Associates saw more than 1% increase in stakes by foreign investors.
In the materials space, stake increases were seen in Hindalco, JSW Steel, Tata Chemicals, Tata Steel and UPL.
On the other hand, foreign investors reduced their stakes in Hexaware Technologies (a private equity firm acquired a 20% stake), MCX, Apollo Tyres, Ashok Leyland, Wockhardt and Aditya Birla Nuvo.
FIIs also cut their exposures to state-owned banks on poor asset quality as evidenced by higher NPLs (non-performing loans), restructured books, credit costs and higher coverage ratios.
DII ownership the lowest since March 2009 Domestic institutional investors (DII) continue to reduce holdings in Indian companies: their stakes in BSE 200 companies continue to be at the lowest level since March 2009. DIIs sold $5bn in the quarter ending December 2013, leading to a decrease in ownership by 15 basis points to 10.9%. Of the 200 largest companies by market cap, domestic investors cut their stake in 127 companies while increased their holdings in 73 companies.
Seven out of 10 sectors saw net selling by domestic investors, with the highest net selling in cyclical sectors such as industrials, material and utilities. They were positive on consumer staples, energy and telecom sectors during the quarter.
BSE 200 stocks with 35-quarter-high FII holding versus low DII holding in a similar time frame include: Britannia, Berger Paints, Dr. Reddy's, HCL Tech, Ipca Labs, Jubilant Foodworks, Just Dial, Nestle India, Pidilite Industries, Piramal Enterprises, Tata Chemicals, Thermax and Zee Entertainment.