At a time when benchmark indices are scaling new peaks and foreign institutional investors have maintained their penchant for the Indian market, picking up shares worth $1.9 billion in November, domestic institutional players have once again turned net sellers of Rs 7826 crore ($1.3 billion) worth of equities.
This is the biggest net outflow number for DIIs since March 2014 when they liquidated shares worth R12,520 crore, or $2.1 billion. Market observers say this reversion in DII participation could be on account of a substantial profit booking by Life Insurance Company of India (LIC) ahead of the much-coveted divestment of ONGC and Coal India, among others.
As the Centre rushes to meet at least a part of its R58,425-crore disinvestment target for FY15, the public sector insurance player is expected to actively participate in the stake sale of some of the flagship PSU businesses, including ONGC.
According to the CEO of a domestic broking house, the Street is keenly watching how the government progresses on its FY15 divestment plan. Besides rate cut expectations, developments on the disinvestment front are seen as a key near-term event.
“The question everyone is asking is can the government achieve its divestment target of close to R60,000 crore? Almost $10 billion of paper in the next four months is a huge supply and that is the reason we believe that the LIC has been a net seller in the market, getting ready for the upcoming divestment,” added the CEO.
Various BSE filings show that, in November alone, LIC sold 1 crore shares, or close to 0.42% equity, in Axis Bank in 12 open-market executions at a combined sell value of R469.7 crore.
Industry experts say LIC ought to account for a larger chunk of equity outflow by DIIs in November, given that both private insurance companies as well as domestic mutual funds have not seen a reversal in the net inflow patterns they have observed in the last 4-5 months. While mutual fund participation in the equity market has revived, private insurance players are yet to see a recovery in the demand of unit-linked insurance products. “In general, fund managers are very positive on Indian equities as investor interest has come back. Even if tactically they may have booked profits in November, given the subdued Q2 numbers and higher market valuations, it is less likely that they would have faced redemption pressure in the month,” said an equity fund manager with a foreign mutual fund.
As per Amfi data, net equity inflow for the first 10 months of the year is R39,217 crore, or $6.5 billion, based on the average rupee rate of 60.5 against the dollar.
According to the head of equity investment at a private life insurance player, the industry has not witnessed any unusual redemption pressure in November while inflows have been decent for bank-linked private insurance players. “It is likely that LIC has turned net seller this month ahead of the commencement of the divestment programme,” he added. In late October, FE had learned from a source that after mark-to-market gains of more than 40% from ONGC’s stake sale in FY12, LIC was looking forward to the government’s divestment programme to raise further stake in the oil & gas company if the shares are offered at an attractive price.
Reports suggest that the FY15 divestment programme may start with the stake sale ONGC and CIL hitting the market as early as mid-December after completion of their roadshows. Broader investor concerns of subsidy sharing formula and weak growth in coal productions notwithstanding, a 5% and 10% stake dilution in these PSU giants, respectively, could bring in close to R19,500 crore to the government’s kitty.
By Devangi Gandhi