Institutional Ownership Trends - A cyclical turn :Edelweiss, PDF link

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Post a gloomy Q3FY12, the sudden upsurge in global risk appetite led to massive FII inflows in Q4FY12 (at a staggering USD8.9bn). Rate cyclicals (banks and capital goods) were the biggest beneficiaries (attracting ~53% of the flows) as core defensives fell out of favour (attracting ~11.0% of the flows). It was, in fact, the best ever fiscal ending quarter in terms of FII inflows as reflected in the market rally as well. On an average price basis, we estimate FIIs to have bought into HDFC, Infosys and TCS while selling Bharti Airtel and LIC Housing Finance among others. DIIs were net sellers to the tune of USD4.4bn. Top DII buys were ONGC and PSU banks while top sells were Infosys, TCS and RIL. Outlook for flows is subdued owing to the rising global aversion in Q1FY13 and low cash levels with domestic funds.

FII flows: Rate cyclicals in favour, defensives get low share

FIIs pumped in USD8.9bn between January and March 2012, bracing Q4FY12 a the best ever fiscal ending quarter in terms of foreign portfolio flows as reflected aptly by the robust market performance (~16% returns). A significant chunk (~53) of these flows went into rate sensitive sectors (financials and cap goods) while core defensives (consumers and healthcare) cornered just 11%. On an average prices basis, while FIIs bought into HDFC, Infosys, TCS, Tata Motors and SBI, they sold Bharti Airtel, LIC Housing Finance, United Spirits and Coal India. From a portoflio perspective, FIIs retained the overweight stance on banking and software and continue their underweight on energy and cap goods.

DII flows: Stacks up financials, logs out software

DIIs, meanwhile, were net sellers to the tune of USD4.4bn. Apart from ONGC, banks (especially PSU banks like PNB, BOB and BoI) have been among top DII buys. However, on an overall portfolio basis, DIIs continue to remain underweight on BFSI and software. Sequentially, there was a scale-down of software within the DII portfolio, a fact also corroborated by our analysis that Infosys and TCS were indeed amongst the top DII sells.

Outlook: Risk aversion, low cash levels to impede inflows

General Anti-Avoidance Rule (GAAR) related uncertainties and a rising global risk aversion on resurgence of Eurozone problems have been at the forefront since March, keeping FII flows at bay (cumulative net outflows of USD120mn in April and May). Further, DIIs can offer only a little support as they seem fully invested (Cash % AUM at 4.90% as of Mar’12 - the lowest in five years). On a net basis, flows could be under pressure in the near term. In this context, we believe SEBI data beyond mid-March could point to a reversal of flows away from cyclicals and into defensives.

Institutional Ownership Trends - A cyclical turn

       
       
       
       
Regards,