The Hindu Business Line : Foreign investors trim stake in 31 pivotal stocks in FY08

Chennai, April 27 As many as 31 of the 50 pivotal stocks (Nifty) listed on the NSE have seen a decline in ownership by foreign institutional investors (FIIs) in the past year.

An analysis of the shareholding pattern filed by the companies with the stock exchange also shows that in relative terms the decline is sharper as two of the 50 stocks (DLF and PowerGrid Corporation) had not even been listed as of March 2007.

The average FII holding, which stood at 19.5 per cent as of March 2007, declined to 13.8 per cent by March 2008.

While ownership restructuring differed from one company to another, the decline on the whole has been recorded only in the fourth quarter. The average FII shareholding had actually increased marginally in the third quarter ending December 2007.

There were indications earlier that FIIs had turned cautious during the last quarter of last year.

Unwinding on a larger scale was perceived in the December quarter, probably led by the perception that stock prices were getting overheated in that period.

The drop in FII holdings was significant in the case of cement, banking and finance. The fear among market players regarding banks’ exposure to forex derivative losses and the Government control on cement prices, which dampened sentiment for stocks in these two sectors, appears to have cast its shadow on the behaviour of FIIs as well. Ambuja Cements, for instance, saw a sharp drop of 8.95 per cent in FII holding in FY-08.

Comeback sectors

Interestingly, the much-battered stocks in IT, FMCG and pharma sectors have attracted foreign funds. The companies that saw FII accumulation during FY07-08 include Hindustan Unilever, ITC, Jaiprakash Industries, Maruti Suzuki, Infosys, Ranbaxy, SBI, TCS and Wipro. The most fancied stock in the last quarter of 2007-08 was Ranbaxy, where overseas investors hiked their stake in the company by 4 percentage points.

The latest shareholding pattern filed with stock exchanges showed that FIIs have lost confidence in Indian large-cap stocks.

Domestic showing

On the other hand, mutual funds have picked up stake in 27 Nifty stocks and shed in 21 stocks while their stake remained unchanged in SAIL. Other domestic institutions too appear to have reposed faith in these companies, as is evident from their increased holding.

FIIs have pulled out over $2.75 billion from the Indian market in 2008, according to the latest SEBI data.

Interestingly, the development comes in the wake of many foreign investment institutions proclaiming faith in the performance of the Indian economy, and corporates in particular.

For instance, in its ‘India strategy: Outlook 2008’ report, Macquarie Bank had said: “India is now too important a market to ignore and we recommend investors to stay invested. We think that 2008 has the possibility of being, yet again, a great year for the Indian market. Our end-year index target is revised to 24,000, while we recommend investors stick with three simple themes — domestic consumption, easing rates and capital spend.”

The bank had clearly discounted recent negative signals in the economy such as the rising inflation numbers, prospect of selective credit controls, the RBI signalling dearer interest rates or the downward revision in the GDP growth to below 8 per cent.