The mayhem in Friday’s market was caused by new worries about foreign institutional investors (FIIs) deserting India on three counts.
First, there were new murmurs about the US Federal Reserve tapering down its quantitative easing that unsettled all emerging markets.
Then, Indian markets went into further convulsions on fears that Wednesday’s measures by RBI to cap outward remittances by Indian residents and companies were a precursor to actual ‘capital controls’ on FII money.
But a third reason for the market’s negativity could have to do with the impact of these measures on corporate prospects.
In recent times, many Indian companies have been increasing their investments overseas to diversify their revenues and profits from the risk of a depreciating rupee.
Recent data from analytics firm Grant Thornton shows that Indian companies have spent $6.8 billion till date this year in such buyouts, a sharp 70 per cent increase from last year.
But the RBI’s decision to curb overseas investments at this juncture places limits on companies’ ability to diversify against domestic slowdown risks.
While not much can be done about this challenge, it is possible to identify sectors or stocks that you need to be bailed out of if foreign institutional investors decide to sell Indian stocks over the next few weeks.
Among sectors, foreign investors prefer banking and finance the most.
As of June this year, they hold 32 per cent of the outstanding market cap in banks and finance companies.
The top stock within this space is HDFC where FIIs hold 73.6 per cent stake.
This is also the largest held FII stock within the listed universe in terms of value.
The other stocks within this sector are IDFC, Shriram Transport, YES Bank and Federal Bank, which have more than 40 per cent FII stake.
HDFC and IDFC fell five per cent yesterday, while YES Bank fell sharply by 11 per cent.
The other sectors where FIIs own more than 20 per cent of the outstanding value of shares are automobiles, entertainment, IT and pharma.
Within the auto space, Mahindra & Mahindra, Hero Motocorp, and Tata Motors have more than 25 per cent FII holding.
In the entertainment space, Zee Entertainment has 42 per cent FII stake, while the other top stocks are Hathway Cable and Den Networks which have more than 20 per cent FII holding.
Zee Entertainment fell four per cent, while Den Networks fell eight per cent yesterday.
In the IT space, stocks such as Infosys, Hexaware Technologies, Redington India, KPIT and MindTree have found favour with foreign investors.
In the pharma space, Strides Aroclab, Glenmark Pharma, Dr Reddy’s, and Lupin have more than 25 per cent FII holding.