42 out of 57 companies on BSE 100 index see rise in foreign institutional shareholding in Sept quarter

The government’s recent policy measures seem to have had the desired effect as far as boosting the sentiment among overseas investors is concerned. If the latest Capitaline data is anything to go by, 42 companies have witnessed a sequential increase in the holdings of foreign institutional investors ? the biggest drivers of the Indian equity market ? in the September quarter.

That accounts for more than 73% of the 57 companies within the BSE 100 index that have announced their latest shareholding pattern so far.

Analysis of the shareholding data indicates that FIIs aggressively increased their exposure in banking and financial services. FIIs were net buyers in all private banks and non-banking financial institutions (NBFCs). Axis Bank saw the highest increase (552 bps) followed by Yes Bank (464 bps), whereas Union Bank of India witnessed the lowest increase (74 bps) in FII shareholding. Others like IDFC, HDFC, ICICI Bank, Kotak Mahindra Bank and HDFC Bank also saw their FII shareholding grow in the range of 100-200 bps.

Further, average FII shareholding of these 42 companies ? the arithmetic mean of company stakes held by foreign institutions ? increased 130 bps q-o-q in September. Other companies to have witnessed increase in FII shareholding include HDIL (422 bps), United Phosphorous (251 bps), GAIL (145 bps), Infosys (153 bps) and BHEL (142 bps). Analysts said September was a good month for Indian equities as the government renewed the faith of foreign institutions by pushing its agenda of reforms. As a result, many institutions have increased their target for Indian benchmark indices.

Last month, Morgan Stanley raised its Sensex target for December 2013 to 23,069, roughly indicating a 25% upside from the current levels. Deutsche Bank also raised its Sensex December 2012 target to 20,000, while Citi raised its index target to 19,900 for June 2013 against the previous target of 18,400 for December 2012.

?While some of the Bills could take time to become reality, it is clear from the government?s action that the reforms drive will continue. The government is showing the commitment in reviving business sentiment. Markets, especially institutions, have derived comfort from these moves,? said Kapil Gupta, analyst, Edelweiss Financial Services.

Analysts said deteriorating economic realities in Europe, US and China were a blessing for India. The European Central Bank and US Federal Reserve intervened in the bond market, thereby controlling the bond yields, whereas the Chinese slowdown kept a check on crude oil and commodity prices.

However, foreign institutions continued to shun public sector banks. FII shareholding in Federal Bank and Canara Bank sequentially dropped 389 bps and 145 bps, respectively, in the September quarter.

Saurabh Mukherjea, analyst, Ambit Capital, was of the view that Corporate India?s balance sheets have been in worse shape than they have been for over 10 years and the banking sector?s dysfunctional loans are almost as big as the net worth of the sector. ?Both of these factors, which have been roadblocks to a strong economic growth, are gradually changing. With the beginning of the economic reform process, it appears that Indian economy might bottom out in Q2FY13,? Mukherjea said.

HDFC Bank, on Friday, reported y-o-y growth of 30.1% in net profit in September on the back of healthy net interest income and one of the lowest net NPAs in the industry.

FIIs increased their stakes in cement stocks, too. Ambuja Cement and ACC saw their foreign institutional shareholding rise 164 bps and 135 bps, respectively. FMCG companies also saw an increase in FII shareholding, albeit by a small margin. Hindustan Unilever (up 105 bps) continued to remain the top pick.

Surprisingly, Cairn India?s FII shareholding grew a whopping 767 bps in the September quarter. Analyst attributed this to Cairn?s signing a farm-in agreement with PetroSA, which would give Cairn India 60% stake as well as operatorship of the ‘Block 1’ located in the Orange Basin. Fifteen (out of 57) companies saw a decline in FII shareholding.

Average FII shareholding of these 15 companies decreased 106 bps for the three months ending September.

Indiabulls Finance saw the first and steepest drop (-478 bps) in foreign institutional holding in the last four quarters after Canada’s Veritas Investment Research firm, in August 2012, accused Indiabulls of sacrificing corporate governance practices to enrich key shareholders.

Other companies to have seen a decline in FII shareholding during the quarter include Dr Reddy’s Laboratories (-135 bps), HPCL (-112 bps), Hero Motocorp (-87 bps), and Adani Ports (-64 bps). FIIs have pumped in more than $16 billion so far this calendar year in Indian equities.