After three quarters of aggressive buying, overseas institutions have started to reduce their exposure to Indian equities as fears of a pullback in US monetary stimulus, combined with the lack of economic pick-up in India and a falling rupee, have dented confidence.
According to the latest Capitaline data, 29 of the BSE 100 companies have witnessed a sequential drop in FII ownership in the June quarter. That accounts for 45% of the 65 BSE 100 companies that have announced their latest shareholding pattern so far.
FIIs aggressively decreased their exposure to banking and financial services space, as well as infrastructure, mining and metals and automobile companies. Among these sectors, JSW Steel saw the biggest drop in FII holdings (1.66 percentage points) followed by Federal Bank (-1.59 ppt), Ambuja Cement (-1.36 ppt), Bank of Baroda (-1.33 ppt), IDFC (-1.04 ppt), Jindal Steel (-0.98 ppt), Bajaj Auto (-0.77 ppt) and Hero Motocorp (-0.72 ppt).
Average FII shareholding of these 29 companies ? the arithmetic mean of company stake held by foreign institutions ? dropped 0.83 ppt q-o-q in June. Other companies to see a drop in FII shareholding include United Spirits (-4.63 ppt ), Hindustan Unilever (-1.88 ppt), and Larsen & Toubro (-0.62 ppt).
Interestingly, FIIs also reduced their ownership in IT companies despite these companies being the biggest beneficiaries of a falling rupee. Data showed FIIs trimmed their holding in Infosys by 0.97 ppt and Wipro by just 0.01 ppt.
Analyst said May and June were dismal months for Indian equities as the US Federal Reserve hinted at tapering its quantitative easing programme (QE3), which had a destabilising impact on Indian and emerging market (EM). In addition, the protracted economic slowdown and a sharp fall in the rupee also prompted FIIs to trim their holdings.
Last week, Deutsche Bank cut the Sensex’s year-end target to 21,000 from 22,500 due to the faster-than-expected pull-back in US monetary stimulus, fears of a slowdown in Chinese economy, and India’s high current account deficit that saw the Indian rupee depreciate more than 10% during May-June.
?The rupee will be a key determinant for stock markets… Currency stability has emerged as the overriding catalyst for the Indian equity market and until the currency stabilises, we expect the Indian equity market to stay highly volatile,? stated a recent Deutsche Bank report.
A further look at the data showed, FIIs increased their holding by a meagre 0.66 ppt in 36 companies. However, FIIs did increase their exposure in pharmaceuticals and fast-moving consumer goods space (FMCG). Dr Reddy’s Laboratories saw the biggest increase in FII holdings (3.03 ppt) followed by Lupin (1.87 ppt), and Divi’s Laboratories (0.84 ppt). Ranbaxy Laboratories was the sole company in the pharma space to see a drop in FII ownership (-0.16 ppt).