While the latest FII (foreign institutional investors) holdings in the top 75 companies at 21.6% are headed to touch a six-year high as per Morgan Stanley report, foreign investors are reducing their stake in troubled sectors like infra and banking, show latest data on their ownership as of September 2012.
FIIs have reduced their ownership infrastructure and construction players IVRCL, Hindustan Construction Company (HCC) and irrigation and agro business focused Jain Irrigation Systems by 4.5% to 5% during the quarter ending September 2012. The FII stake in IVRCL has reduced by nearly 14% in the last one year to 23.4% while that in Jain Irrigation and HCC has dropped by 9.4% and 6.2% to 46% and 18.2% respectively, show the data.
During the period, they have also trimmed down their stake in other infra and construction players including Lanco Infratech, Suzlon Energy, NCC, Indiabull real estate, Pipavav Defense and GVK Power Infra by 8% to 1%. They have also cut their holdings in public sector and smaller banks, namely Indian overseas bank, Syndicate bank and smaller banks like Allahabad bank and Vijaya banks by 0.5% to 2.8% during the year.
According to Rikesh Parikh of Motilal Oswal Securities FIIs generally disfavour companies that consistently under-perform the market also as they avoid companies that consistently fail to strengthen their financial health.
Interestingly, only four out of the nine companies that observed a substantial dip in FII ownership, including HCC, Jain irrigation, GVK power infra and Suzlon Energy have underperformed Sensex in this year so far. While the 30-share benchmark has gained 20% in the year so far, HCC has gained a meager 1.2% and Jain irrigation has lost 25% of its value.
The common element that seems to connect the foreign investors’ dislike for these companies appears to be their financial health. Nearly 15 of the 18 odd companies that have observed a reduction in the FII ownership in last one year have either seen a drop in their net profits or have reported losses in the twelve months to September. For companies with capital intensive business structure in particular, higher debts have made them unpopular amongst FIIs besides the fundamental slow-down of the sector like infrastructure and constructions. For example, Lanco infratech, GVK Power Infra, Suzlon Energy, HCC, NCC and Pantaloon retail each have a total debt of R30,000 crore to R5,000 crore on their books.
Among the debt-ridden companies that have gained the limelight due to the problems faced during the debts restructuring, Suzlon, Deccan Chronicle Holdings and Hotel Leela Ventrues saw FII stakes coming off in the last two quarters. On the other hand, debt heavy Kingfisher Airline, DLF and IRB Infra development have experienced an increase in FII ownership at the end of the September quarter.