In a year when the Indian benchmark indices touched record highs, foreign institutional investors increased their exposure to companies in the banking and financial sector. As expectations of an economic revival increased, foreign investors seem to have taken a shine to the sector considered to be a leading beneficiary of growth expansion.
Data compiled by FE shows FIIs increased their stake in as many as 20 stocks from the space in the one-year ending December 2014. For purposes of compilation we considered companies in the BSE 500 universe that have announced their shareholding details as of December 2014.
Through 2014, while the benchmark Sensex and Nifty clocked in close to 30% gains, the sectoral indices on banking , including that on the public sector banks (PSBs) recorded more than 60% gains.
In the financial services space, housing finance companies and other NBFCs saw the greatest interest from foreign investors with their ownership in LIC Housing Finance, HDFC and Muthoot Finance having risen anywhere between 3.5 to 5.2 percentage points (ppt). The latest FII holdings in these companies now stands at 40.87%, 78.49% and 13.07%, respectively.
While an impending turnaround in the interest rate cycle is seen a key beneficiary for the sector, housing finance companies have emerged on investors’ radar as cost of funds for these set of NBFCs are expected to fall faster than lending rates. Analysts expect robust margin expansion for the segment going forward amidst strong mortgage growth. PTC India Financial Services, L&T Finance Holdings, JSW Holding and Bajaj Finance were the other NBFCs which witnessed substantial increase in FII ownership in the last one year.
The Street’s general preference for the private sector banks was also visible in the pattern of change in FII exposure . Foreign investors raised their holdings in Kotak Mahindra Bank, DCB Bank, ICICI Bank, each by more than 3%. The latest data for Axis Bank and Yes Bank is not yet available.
State Bank of India and Bank of Baroda were the prominent PSBs in which FII ownership went up by 2% and 3% respectively during the period while their stakes in Syndicate Bank, Canara Bank as well as Union Bank also witnessed some improvement. Notwithstanding the return in share price towards the second half of the year, the lower valuations of PSBs seem to have attracted FII interest.
Meanwhile, foreign investors trimmed their ownership in private sector banks like ING Vysya and Federal Bank and PSBs like Bank of India and Andhra Bank. The NBFC behemoth IDFC also witnessed a decline of close to 3.7% in FII stake during the year.