While the Indian Government has been the favourite whipping boy of the markets for its alleged “policy paralysis”, it has not deterred the FIIs from allocating the largest share of their investment among the emerging markets to India during this year so far, a study by JP Morgan India Private Ltd has shown.
While the difference between India and its nearest competitor itself is so huge, the other countries making the Emerging Markets have been able to get just a fraction of the FII flows that the first two nations attracted. According to the report dated August 8, FIIs have bought $1.8 billion of Indian equities over July and year-to-date in CY2012, they had purchased $10.3 billion of Indian equities.
During the current calendar year so far, while FIIs were buyers across most emerging markets, India has received the maximum FII investment YTD, the JP Morgan report has said.
While FII net flows in CY YTD 2012 into India was $10,476 million, its nearest competitor Korea got just $5,747 million or a little more than half of India's. Thailand had to settle for $1,977 million, the Philippines $1,948 million, Brazil $1,254 million and Indonesia $467 million. It was negative in case of South Africa and Taiwan.
The report on institutional investment in Indian markets has come out with interesting findings on the preferences of institutional investors. The three major institutional players in the capital markets - insurance companies, domestic mutual funds and foreign institutional investors, while united in avoiding IT, seemed to have adopted different views on other sectors. While FIIs took a more defensive posture, domestic institutional investors (DIIs) were more aggressive. This reflected in their respective stock picking.
Energy, financials top picks
JP Morgan report shows that insurance companies appear to favour energy, financials and industrial sectors while health care and consumer staples seem to have fallen out of favour with them.
Domestic mutual funds have shown a preference for industrials, telecom services and financials whereas health care, energy and IT did not seem to have
impressed them. FIIs took a fancy for consumer staples, utilities and health care while industrials, IT and financials were not favoured in the March-June quarter, 2012.
According to the report, the data released for the June quarter showed that the FIIs reduced their ownership of equities in India by 10 bps while DIIs increased their holdings by 20 bps. The FII holdings at 15.7 per cent was near its historic high. Insurance holding of Indian equities at 5.9 per cent is at an all time high. But the holding of mutual funds at 3.7 per cent are off their highs. A look at the portfolio composition showed the contrasting investment approach of institutional investors. While DIIs hiked their holdings in financials and industrials, they cut their stake in health care, IT services and staples.
FIIs contra stance
But FIIs took a contra stance. While it is true that FIIs were overweight on financials, they have trimmed their overweight position substantially in the last few quarters. Consumer discretionary and telecom were the other favourite sectors. But they are underweight on energy, IT and industrials.
Over a 12 month period, FIIs have increased their stake in health care, consumer discretionary and consumer staples while cutting their stake in industrials, energy and materials sectors. In the March-June 2012 period, FIIs increased their holdings in United Spirits, Cipla, Godrej Consumer Products, Satyam Computer, UltraTech Cement, Sesa Goa, Titan, Cairn India, M&M and BPCL. But they trimmed their stake in Axis Bank, LIC Housing Finance, Zee Entertainment, Bajaj Auto,
L&T, Dr.Reddy's, JSPL, Maruti Suzuki, Infosys and Hindalco.
Insurance, MFs holdings
Insurance companies during March-June 2012 period, other than consumer staples and health care, hiked their stake in most other sectors. But over the past 12 months, they focused on IT services, energy and industrials while reducing holdings in health care, utilities and materials sectors. Among the stocks in which they hiked their stake were Bank of Baroda, REC, Infosys, Bajaj Auto, Reliance and Hero MotoCorp. But they cut their stake in Satyam, Tata Motors, BPCL, TCS, M&M and Ranbaxy, among others.
Mutual funds during this quarter increased their holdings in industrials, telecom and financials while paring their stake in health care, energy and IT services. Over a 12-month time, they hiked their holdings in industrials, financials and materials while cutting their holdings in health care, consumer staples and utilities.
In the three-month period ended June 2012, MFs increased their holdings in L&T, Satyam, Maruti, ICICI Bank, Reliance Capital and HCL Tech, among others. But they trimmed their holdings in Cairn, BoB, Cipla, Titan, M&M, Lupin and Tata Power, among others.