Sell side story
Foreign investors have pared their holdings in many blue chips and moved on to value stocks in the second quarter

The second quarter was a period of churn in stock holdings. The three months from July to September 2017 saw foreign investors cashing out in many blue chips and moving on to pick some low hanging stocks. This is a significant development given foreign investors are still the movers and shakers of stocks in India, though domestic funds are taking a contrarian view and propping up the stock values from falling for now.

The quarter also saw mutual funds and other local investors stepping in to spaces vacated by foreign investors.

Figures collated by corporate data firm Capitaline shows foreign investors booked profit ahead of Diwali in popular large and mid-cap stocks. Foreign portfolio investor (FPI)  shareholdings were down in Tata Motors, State

Bank of India, Kotak Mahindra Bank, Lupin, Crisil, Max Financial Services, Tata Power, Tata Chemicals, ONGC, Coal India, HDFC Bank, Tata Consultancy Services, ICICI Bank, Axis Bank, Suzlon Energy, IDFC, Yes Bank, Jagran Prakashan, HDIL and PTC India, among a host of others.

In July-September, FPIs shed their holdings partially in 212 out of 346 companies in the BSE 500 Index that have declared shareholding pattern so far while they selectively raised their stake in 134 companies.

Some public sector banks were back in foreign investors buying list, like Bank of Baroda, Canara Bank, Oriental Bank of Commerce, Union Bank, Central Bank of India, Syndicate Bank, Bank of India and Indian Bank.FPIs also raised stake in mid-sized banks like RBL Bank, IDFC Bank, South Indian Bank, Jammu & Kashmir Bank and Karnataka Bank.

Foreign investors reduced their stake in large private banks like HDFC Bank, ICICI Bank, Yes Bank, Axis Bank. Their holdings also came down in select public sector

banks like Punjab National Bank, Dena Bank, Bank

of Maharashtra and Andhra Bank.

The big buys of foreign investors included Tata Steel, where their stake went up from 13.67 per cent to 15.9 per cent in the September quarter, Cyient (44.69 per cent to 50.11 per cent), Granules India (12.15 per cent to 19.79 per cent), Interglobe Aviation (5.79 per cent to 10.93 per cent), Ujjivan Financial Services (7.46 per cent to 11.29 per cent) and Bata India (5.97 per cent to 8.73 per cent).

A big drop in FPI holding was seen in PTC India Financial Services—from 7.93 per cent to 2.86 per cent—HDIL (42.32 per cent to 33.98 per cent), Suzlon Energy (14.41 per cent to 11.86 per cent) and Max Financial (29.64 per cent to 26.07 per cent).

National Securities Depository (NSDL) data shows foreign portfolio investors were net sellers in equties by Rs 19,001 crore in the July-September quarter. Actually, they were net buyers in July by Rs 5,161 crore, but the the next two months saw heavy FPI selling of Rs 12,770 crore in August and Rs 11,392 crore in September.


Care Ratings, in an analysis of the FPI flows, said, “The outflows are being attributed to high valuations, delay in earnings revival, concerns pertaining to the overall strength of the domestic economy and anticipation of US rate increases that has increased outflows from emerging markets.”

The general assessment is that FPI inflows would remain subdued in the near future and more FPI selling in Indian equities can be expected.

An India strategy report by ICICI Securities says portfolio flows could come under pressure from rising interest rates and gradual unwinding by central banks.

The sharp two-way movements in stock valuations seemed to have accentuated the process of FPI pullout from equities. Kotak Securities, in a strategy report, said, "The sharp relative movement in prices of large-cap stocks over the past two months  reflects growing expectations of global economic recovery, strong recovery in global commodity prices, potential positive or negative regulatory developments like uniform tariffs for long-distance gas pipelines, lower regulated returns for generation and transmission of regulated power companies, approvals for new generic drugs in the pharmaceuticals sector and M&A in the telecom sector.”

In contrast to the behaviour of foreign investors, mutual funds have been on a buying spree. In the July-September quarter, the MFs either raised, or maintained to Q1 levels, their combined holding in close to 240 of the 346 companies. In Q2, their holdings went down in 106 companies from the April-June quarter.

Significant mutual fund buying was seen in Reliance Industries, Raymond, Larsen & Toubro, Hero Mo-tocorp, Hindustan Unilever, ITC, Kotak Mahndra Bank, Tata Chemicals, Tata Steel, Titan Company, Shriram Transport, Punjab National Bank, South Indian Bank, RBL Bank, Syndicate Bank, Bank of Baroda, Canara Bank, Axis Bank, HDFC Bank, Lupin, Ipca Lab, Coal India and Indian Oil Corporation.

A sharp rise in MF holdings was seen in GAIL India (from 7.81 per cent to 10.24 per cent), NTPC (3.71 per cent to 6.35 per cent), Cyient (from 6.16 per cent to 11.92 per cent), Suzlon Energy (0.92 per cent to 3.62 per cent), DCB Bank (15.5 per cent to 17.6 per cent), Sobha (from 6.31 per cent to 10.07 per cent), Interglobe Aviation (2.78 per cent to 5.96 per cent), Ujjivan Financial Services (4.09 per cent to 7.44 per cent), Thyrocare Technolo-gies (13.24 per cent to 17.8 per cent) and Tamilnadu Newsprint and Papers (7.5 per cent to 13.87 per cent).

In the banking space, mutual funds raised their stake in HDFC Bank, Punjab National Bank, Bank of Baroda, RBL Bank, Axis Bank, Canara Bank, South Indian Bank and DCB Bank.


Mutual funds reduced their shareholding in Jammu & Kashmir Bank,Yes Bank, Oriental Bank of Commerce, Andhra Bank, Indian Bank and Union Bank.

The big names in which mutual fund holdings came down from the previous quarter included Bharti Airtel, Tech Mahindra, IDFC, IIFL Holdings, Bajaj Auto, J Kumar Infra, Blue Star, Greaves Cotton, Indian Hotels Company, Siemens, VIP Industries, Tata Communications, Bharat Electronics, Zee Enter-tainment, Hindustan Copper, Oil India, TVS Motors, Oracle Financial Services and PVR

Life and general insurance companies, the long-term investors in the equity market, were seen booking profit in most of the 346 companies in the BSE 500 Index. They raised their stake in only 49. In the rest, their stake either came down or remained static.

While a consensus view of equities among the domestic and foreign investors look impossible, many analysts feel the Indian market faces headwinds from a weaker macro.

Says a Kotak Securities analysis, "We see two headwinds for the Indian market apart from the customary but ignored one of muted earnings growth. The headwinds facing Indian equities are India’s weaker macroeconomic position in the form of higher current account deficit (CAD) of 2 per cent in FY2018E versus 0.7 per cent in FY2017, higher gross fiscal deficit (GFD) of around 6.5 per cent of GDP in FY2018E versus expectations of 6 per cent earlier and higher inflation which is likely to reach 4 per cent in the next two-three months”

India will need strong earnings support to stand apart as a ‘standalone’ asset class.

“India’s long-term consumption story emanating from its favourable demographics has been the key investment theme for investors given the lower relevance of other themes like commodities, exports, infrastructure and technology. However, valuation of the ‘consumption’ part of the market is quite rich . At the same time, we see short-term risks of margin/profitability compression as margins have moved to cyclically high levels and longer-term risks from disruption to business models,” Kotak Securities said.

Ravi Ranjan Prasad