Varying investors’ perception of holding on to IT stocks

The normal impression is that high institutional investors’ holding in a company makes it a good investment pick because of the thorough research the institutional investors, both foreign (FIIs) and domestic (DIIs), make before investing, which retail investors could bank on.

Another widely held belief is that the institutional investors fancy IT stocks, particularly the four IT majors, because of the perceived transparency and investor-friendly attitude of their management. This was further strengthened by the steep fall in the value of Indian rupee against the dollar, which was expected to benefit the forex-oriented IT sector earnings.

But a look at investor holdings in the four IT majors - Infosys, Wipro, TCS and HCL Tech- throws up some surprises. While in some cases the promoters and/or retail investors have pared their stake, in others, the institutional investors have cut down their holdings. But in one case, the retail investors’ stake outweighs the combined holding of institutional investors!

Surprisingly, FIIs have reposed strong faith in Infosys which has been slowly losing its dominant position as the numero uno IT stock and have been upping their holdings in the last few quarters, including the latest September quarter.

HCL Tech has increased the cap on investment by FIIs, through the primary market and stock exchanges, to up to 30 per cent with effect from October 11 as notified by the RBI. The FII stake in the company, as on June 30, 2012, was much below the enhanced limit, with their holding at 19.97 per cent of the equity. However, the FII stake has been slowly creeping up for the past few quarters. While at the end of December 31, 2011, the FIIs held 18.85 per cent stake in the company, this moved up to 19.42 per cent at the end of March 2012 quarter and further to 19.97 per cent at the end of June this year.

A similar trend was witnessed in the holding of DIIs, though their stake was far less compared to the FIIs. The DIIs have been steadily upping their stake in HCL Tech-from 8.24 per cent on December 31, 2011, to 8.40 per cent at the end of March this year and further up sharply to 9.51 per cent at the end of June this year.

But the promoters and other investors, including individual investors, have been reducing their stakes in the company, as BSE data showed. The promoter's holding, which was 64.18 per cent at the end of December 2011, was down to 63.77 per cent in the quarter ending March 2012 and further down to 62.24 per cent at the end of June this year. The other investors, including retail, also were lightening their holding in the company- from 8.73 per cent on December 31, 2011, to 8.41 per cent in the quarter ending on March 31 and further down to 8.28 per cent on June 30 this year.

The Infosys stock has swayed between a 52-week high of Rs 2,990 on February 22, 2012 and a yearly low of Rs 2,101.65 on July 26, 2012 on the BSE and it closed on Friday at Rs 2,395.65 after its Q2 results were announced.

While the promoters’ holding has been steady at 16.04 per cent in the past three quarters, including the quarter ended Sept 30, 2012 (Infy is the only IT major to announce the Q2 results), its rather unimpressive show has not unnerved the institutional investors, both FIIs and DIIs, who have been pushing up their holdings in the stock. The FIIs have jacked up their stake from 39.02 per cent in March 2012 quarter to 39.42 per cent in the quarter ending Sept this year. In between, though, they had pared their stake in the first quarter of this year to 37.89 per cent.

However, the DIIs have been steadfast in their faith in Infosys. Their stake has gone up from 16.57 per cent at the end of March 2012 to 18.29 per cent in June and marginally to 18.33 per cent in September this year. But others, including retail investors, do not seem to share this optimism and have been cutting their holdings in the counter which has dropped to 26.21 per cent at the end of September 2012, from 27.78 per cent in June and 28.37 per cent in March this year.

In case of TCS, too, the institutional investors among themselves and retail investors have shown a contra approach. While FIIs are increasing their stake, DIIs and retail investors are probably booking profit, as reflected in the numbers.

The holding of the promoters has dropped slightly- from 74.08 per cent in December 2011 to 73.98 per cent in the March 2012 quarter, which has remained the same in the first quarter of this year, too. However, FIIs are increasing their stake steadily from 13.41 per cent in December 2011 to 14.02 per cent in March and to 14.63 per cent in June 2012. But the DIIs are on a sell mode with their share dropping down to 6.71 per cent in June 2012 from 7.20 per cent in March 2012 and 7.67 per cent in December 2011.

Also others, including retail investors, are trimming their stake that is already low. It has fallen from 4.84 per cent in Dec 2011 to 4.80 per cent in March 2012 and further down to 4.68 per cent in June this year. The retail investors are probably booking profit because the stock has appreciated nearly 40 per cent from its October 2011 lows though in the past few days it has come down from its 52 week high of Rs 1,438 that it touched on Sept 14, 2012. But what is surprising is that though TCS has been steadily improving its position in the pecking order of the IT counters, retail investors have not warmed up to it greatly. DIIs, especially MFs, are probably selling to meet due to redemption pressure.

The case of Wipro is slightly different because of the very high promoter stake of over 78 per cent. There is no significant change in shareholding pattern. Though a slight dip in promoter stake is visible, it is still higher than the new minimum public shareholding norm of 25 per cent that would kick in from June next.

The promoter’s stake, which was 79.15 per cent in December 2011, came down to 78.41 per cent in March and to 78.37 per cent in June this year. But Wipro is one stock where the combined holding of institutional investors is less than others (mainly retail investors!).

The DII holding has come down marginally from 3.63 per cent in December 2011 to 3.41 in March 2012 and was at 3.47 per cent in June. The FIIs have upped their stake from 5.74 per cent in December 2011 to 6.67 per cent in March 2012 and kept it at 6.59 per cent in June. But the other investors’ stake has gone up from 11.48 per cent in December 2011 to 11.51 per cent in March 2012 and to 11.57 per cent in June this year.

With SEBI Chairman U.K. Sinha mincing no words about corporates’ compliance with minimum public shareholding norms before deadline, it is possible that Wipro may come out with some action in this regard in the coming months.

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