Foreign institutional investors have pared their stakes in top IT companies Tata Consultancy Services, Infosys, Wipro and Tech Mahindra, according to shareholding data for the quarter ended June 30. This development is in stark contrast with last fiscal, when FIIs had increased their holding almost every quarter in these companies.
The maximum reduction in FII holding of 97 basis points (bps) was seen in Infosys, followed by Tech Mahindra, Wipro and TCS. It may be recalled that Wipro had set April 11 as the record date for demerging its diversified business. During the quarter, Tech Mahindra completed the process of merging with Mahindra Satyam.
‘Least preferred’
An Axis Capital report, which analysed institutional holdings in Nifty 50 stocks, said that IT was one of the least preferred sectors for FIIs in the quarter gone by. FIIs had reduced holdings by 87 bps in the quarter ending June. TCS and Infosys joined the likes of blue-chip counterparts HUL, Tata Motors and SBI where maximum FII selling was witnessed, it said.
So, are FIIs turning bearish on India’s $108-billion IT services sector?
“What’s happening in the counter of IT companies is in line with the broader trend where FIIs are opting out of Indian equities. I don’t think FIIs are selectively targeting the IT sector,” said Ankita Somani, Sector Analyst with Angel Broking.
In the biggest two-month sell-off in nearly five years, FIIs have pulled out more than Rs 17,000 crore from the Indian equity markets in June and July, according to data available at the bourses.
The high prices being commanded by TCS and Tech Mahindra too, has propelled some FIIs to book profits, some analysts said. TCS, for instance, is trading at a price to earnings ratio of more than 19, said Somani.
“There was some confusion regarding predictability of growth in the April to June quarter as not all companies were bullish in their commentary. This too, would have contributed to selective selling by FIIs,” added Somani.
On the demand side, there continues to be a strong policy overhang of the US Immigration Bill, which could fundamentally alter the way companies do business in their largest markets.