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India – Strategy (Where is the money?):
Year to date in FY11, FII inflows, at US$25bn, have already crossed last year’s record US$23bn. Not surprisingly, FII shareholding of India’s market has increased 250bps to ~16% (for BSE200) since the lows of March last year. FIIs now own US$227bn worth of stocks in BSE 500. FIIs are currently underweight large domestic growth sectors—Consumer Discretionary, Staples, and Industrials. They are overweight only Financials (+930bps compared to index), and 36.1% of FII holding is concentrated in Financials. We recommend an Overweight on both IT and Metals. Both these sectors (especially IT) are currently under-owned in institutional portfolios. Fundamentally, the IT sector currently has business momentum, and with the rupee unlikely to appreciate materially, earnings could surprise on the upside. The Metals sector offers a strong hedge to our overweight domestic consumer-focussed portfolio against a sharp rise in global commodities on the back of a deluge of QE2 liquidity.
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