The sharp downturn in the capital market during calendar year 2008 has resulted in the foreign ownership of Sensex companies declining to 16% by the end of December 2008 from 18% recorded during the first quarter of 2008. While foreign institutional investors (FII) chose to reduce their exposure significantly in companies like ACC, Grasim, Hindalco, Ranbaxy, L&T, and Reliance Communication, they have almost maintained or increased their ownership in stocks like HDFC Bank, ITC, Infosys, TCS and Wipro.
However, the financial year 2009 is expected to see some shift in FII preference with banking sector stocks emerging as their favorite while IT sectors falling out.
In its India market strategy for the financial year 2009-10, UBS has turned underweight on consumer staples, IT services and oil and gas while maintaining overweight on the auto, banking and metal sector stocks.
Even as the FIIs have been the major sellers in the domestic market throughout 2008 and first quarter of 2009, with their total net equity sales registering Rs 6,140.3 crore till date in the current calendar year, a UBS report points to the recent data, which indicate that FII sales are slowing down and based on the improvement in the global sentiment, FII flows could turn positive in the coming weeks. As such, UBS has maintained a bullish stance on the Indian market and has given a Sensex target of 13,500 by March 2010.
But the IT sector stocks, which have witnessed no major changes in the FII ownership in the year 2008, might see some pressure from foreign investors during 2009 as they are not expecting an imminent recovery in the US economy.
?We are underweight on IT services, as we believe IT budgets in 2009 will decline from the low single digit up to 20%. We forecasts a revenue decline of 5- 7% year on year (YoY) in dollar terms in FY10 for top tier IT companies while the tier ? 2 IT companies will see a much steeper revenue declines?, the UBS report states.
However, recent measures like a cut in the key interest rate by the Reserve Bank of India (RBI) and expectation of a recovery in the global commodity prices has resulted in a revival of sentiments towards auto, banking and metal sectors. Experts said that most of the concerns on the banking sector like banks non-performing loans (NPLs), a slowdown in the loan growth, among others, have been largely priced in at the moment and a economic recovery will likely lead to reversal in sentiments by the second half of 2009.