India Strategy
Identifying Over-Owned/
Under-Owned Stocks
FII portfolio: O/W on cement and U/W on energy rise; U/W
on pharma and O/W on financials fall
FIIs had a tepid interest in the Indian markets during the quarter with a
negative bias. They sold cyclicals like financials, industrials and energy while
buying defensives like consumers and pharma apart from cements.
The buying in cement and pharma brought down the U/W for pharma and
increased the O/W in cement. Change in the MSCI index resulted in no
change in FII O/W on consumers despite heavy buying during the quarter.
Financials continue to be the biggest O/W sector for the FIIs with 2 stocks in
the top-5 O/W stocks list of the FIIs. However, due to the recent selling done
by the FIIs and index changes O/W on the sector is now at the lowest.
Key stocks bought: TCS, HDFC, HDFC Bank, Cairn India, & ITC.
Key stocks sold: Axis Bank, Infosys, RIL, L&T and Yes Bank.
Domestic MF portfolio: O/W on Industrials and U/W on
Financials rise; O/W on Pharma and U/W on Metals fall
Domestic MF portfolio is in stark contrast with that of FIIs, with Industrials
being major O/W sector, sector where FIIs are marginally U/W. Consumer is
another sector where domestic MFs are heavily O/W in contrast to FIIs who
are not. They are also U/W Financials where FIIs are O/W. However, on the
similar lines of FIIs, domestic MFs are also U/W commodities.
In contrast to FIIs, domestic MFs bought financials & industrials and sold
consumers & pharma. However, on the similar lines to FIIs they sold energy.
LIC net buyer
LIC was a net buyer during the quarter. LIC bought Utilities (NTPC), Software
(Infosys & TCS), Energy (RIL & Cairn India) and Auto (Bajaj Auto & Hero
Motocorp). LIC sold Consumer (HUL & ITC).
25% public holding norm to be implemented by next year
As per SEBI norms all private sector listed companies need to have 25% public
holdings by June 2013 (for PSUs it is August 2013). In the BSE 500 there are 66
companies which need to lower their promoter holding to 75%. Therefore at the
current price these companies together need to raise ~22bn US$ to sell the extra
promoter holding. Large portion of this is from the PSUs (~19bn US$). Among the
PSU which need to lower the Govt. stake include Coal India, MMTC, NTPC, &
NMDC. Private companies include Wipro, DLF, R-Power, Adani Ent.
Market ownership structure
During June quarter FIIs turned negative on the Indian markets. This was
reflected by the selling done by the FIIs during the quarter. Based on average
prices in the BSE-500, close to USD 500mn was taken out of the Indian equity
markets by the FIIs in the quarter as compared to $5bn inflow in the previous
quarter. Domestic MFs on the other hand were marginal net buyers during the
quarter as compared to $2bn outflow during the previous quarter.
FII ownership analysis
FII interest in 1QFY13 in the Indian markets turned negative once again post a
strong previous quarter. Compared to a $5bn inflow of the previous quarter FII net
outflow was $500mn for the quarter.
FIIs were positive on the defensives like Consumers & Pharma along
with cement and utilities whereas they were negative in sectors like
financials, industrials & Energy. This coupled with the changes in
MSCI index has resulted in some minor changes in OW/UW of few
sectors.
FIIs continued with their maximum O/W on financials at the expense
of other sectors. Due to heavy selling and inclusion of Bank of
Baroda into the index, overweight for the sector has come down. The
O/W for the sector is now at the lowest level. Post MSCI rebalance
now only 2 financial companies figure on the top of the top-10 overowned
list (ICICI and HDFC).
Energy is now the largest underweight sector for the FIIs. The sector
saw some selling during the quarter which coupled with inclusion of
Cairn in the index led to an increase in its underweight.
Software continued to be the largest underweight sector for the FIIs.
The sector saw marginal selling during the quarter but the
underweight has largely remained the same.
Consumer staple was one sector which has seen interest from the
FIIs over the last 3 quarters. It is the highest bought sectors for the
quarter. However due to the inclusion of Godrej Consumer in the
MSCI index, the O/W for consumer has largely remained the same.
Industrials sector was another sector heavily sold by the FIIs led by
L&T. This has turned the sector to be marginally underweight.
Metals saw muted interest from the FIIs resulting in the lower
underweight for the sector.
Pharma was one of the highest bought sectors during the quarter.
Heavy buying turned the sector to be marginally overweight which
was marginally underweight during the last quarter.
Key buys in this quarter were: TCS, HDFC, HDFC Bank, Cairn India,
& ITC. Key sells were: Axis Bank, Infosys, RIL, L&T and Yes Bank.
Over-Owned/Under-owned Stocks and Sectors
by FIIs
We have updated our analysis of FII holdings to determine the sectors and stocks
that FIIs as a whole are OW / UW on, following availability of the shareholding
pattern as on June 30, 2012.
Methodology Recap
Based on FII holdings in individual BSE-500 companies, we calculated an
aggregate FII portfolio in India and their percentage holdings in various stocks
and sectors. We then compared this with the MSCI weight to determine sectors
and stocks that FIIs are O/W/U/W on. One anomaly is in the companies that have
issued ADRs/GDRs. Given that these are also partly held by non-FIIs, we should
ideally have included only the FII holding of GDRs/ADRs in our analysis.
However, since we do not get a separate break-up of the ADR/ GDR holding into
FIIs/ non-FIIs, our analysis may show a higher FII weight in stocks with a high
ADR/ GDR component, than is actually the case. We have also included FDI into
the FII stake.
Sector Ownership- O/W on Cement and U/W on Energy rise;
U/W on Metals & Mining and O/W on Financials fall
Financial: Financials, the biggest O/W sector, saw highest net selling by the FIIs.
FIIs bought popular largecap names such as HDFC (USD 190mn), HDFC Bank
(USD 140mn) However FIIs sold Axis Bank (USD 430mn), LIC Housing Fin (USD
120mn) and Yes Bank (USD 180mn).
Industrials: Industrials saw significant selling by the FII’s during the quarter
leading to marginal increase in its U/W. They sold L&T (USD 230mn) and BHEL
(USD 60mn).
Energy: Energy was an underweight sector which saw significant selling leading
to increase in its U/W. FIIs sold RIL (USD 360mn), however they bought Cairn
(USD 120mn).
Pharma: Pharma was one of the highest bought sectors during the quarter, FII’s
bought Cipla (USD 100mn), Sun Pharma (USD 60mn) and Wockhardt (USD
40mn). However they sold Dr Reddy (USD 80mn), Max India (USD 30mn) and
Glenmark (USD 30mn).
Software: Software was one of the sectors which was sold heavily. They sold
Infosys (USD 420mn) whereas they bought TCS (USD 280mn).
Consumers: Consumer sector continued to find favor from the FIIs. They bought
ITC (USD 120mn), HUL (USD 110mn) and Marico (USD 100mn).
Cement: Cement was another sector which found favor with the FIIs during the
quarter. FIIs bought Ultratech Cement (USD 100mn) and Ambuja (USD 25mn).
Historical Snapshot of the Sector-Ownership Patterns
Overweight on financials continues to come down and is currently at
the lowest level since 2008 partly also because of change in the
MSCI index.
Overweight on telecom is also at the lowest level since 2008. This is
parltly also due to the inclusion of Bharti in MSCI
Industrials sector which used to be a big O/W sector has lost FII favor
in the recent quarters and is no longer an O/W sector.
Consumer sector is no longer an underweight sector once more
largely due to the buying done during recent quarters.
Stocks Over-Owned/Under-Owned
Table 4 details the FII holdings in all MSCI stocks and the extent to which they
are O/W/U/W compared to the MSCI Index. Tables 2 and 3 list the top overowned
and under-owned stocks:
Key Highlights:
There are 2 financial stocks in the top 5 over-owned stock list, with all
two in the top-5. This once again reiterates the FII bias towards the
sector. However the overweight has come down over past few
quarters and is at the lowest now and 2 stocks – SBI and HDFC
Bank now figure in the top-10 under-owned stock list as well.
Energy is now the highest underweight sector for the FIIs with ONGC
being the new entry in the top-10 under-owned stock list for the FIIs.
There was 2 changes in the top -10 over-owned stock lists by FIIs as
ABNL, BoI and Canara Bank came into the index while Dabur and
Zee exited the top-10 list.
There was 1 change in the top -10 under-owned stock lists by FIIs as
ONGC replaced JSPL.
What FIIs Bought and Sold
FIIs outlook on Indian markets turned negative during the quarter. They were
bearish on Financials, Industrials, Energy and Software this quarter.
However FIIs showed interest in defensives like Consumers, Cement and
Pharma.
Top buys for the FIIs: TCS, HDFC, HDFC Bank, Cairn India, & ITC. Top
sells: Axis Bank, Infosys, L&T, Yes Bank and Bajaj Auto
Domestic Mutual Funds
In contrast to FIIs domestic MF bought Indian equities with an inflow of $50mn in
the quarter vs. a net outflow of $2bn in the previous quarter. They were neutral on
the Indian markets across most sectors.
Domestic mutual fund portfolio is in contrast with that of FIIs, with Industrials
being major overweight sector, sector on which FIIs are no longer positive.
Financials is another sector where domestic mutual funds are heavily
underweight in contrast to FIIs where they are O/W. They are also underweight
Consumer Disc. where FIIs are O/W. Domestic mutual fund portfolio are heavily
overweight on Consumer Staples where FII have marginally turned overweight
during the quarter. However, on the similar lines of FIIs, domestic mutual funds
are also underweight Software, metals & mining sector, utilities and Energy
sectors.
Industrial is one of the biggest O/W for domestic MF’s. This O/W for
them increased on account of heavy buying done by them during the
quarter.
Consumer Staples is one of the biggest O/W for domestic MF’s. The
sector saw some selling by the domestic MF’s. However, strong price
movement in consumer stocks especially in ITC (where MFs are
already hugely overweight) led to the increase in the O/W for the
sector.
In contrast to FIIs, domestic mutual funds bought industrials and
financials and sold utilities and consumers.
Top buys for the domestic mutual funds were: L&T, ICICI Bank,
Infosys, HDFC Bank and Maruti Suzuki.
Top sells for the domestic mutual funds were: TCS, RIL, Cairn India,
HDFC and Bank of Baroda.
Sector ownership: O/W on Staples, Industrials and U/W on
Financials goes up; O/W on Pharma and U/W on Metals &
Mining, Software comes down
Financials: Financials were one of the favored sectors by the MFs. Domestic
MFs bought ICICI Bank (USD 150mn) and HDFC Bank (USD 70mn). However
they sold HDFC (USD 50mn). However inclusion of Bank of Baroda in the index
resulted in increase in the UW for the sector.
Industrials: Industrial was the highest bought sector by the MFs led by L&T
(USD 275mn). Heavy buying in the sector led to increase in O/W for the domestic
MFs.
Energy: Domestic MFs were the net sellers in the energy sector. They sold RIL
(USD 100mn) and Cairn India (USD 100mn).
Software: Domestic MFs were the net sellers in the software sector. The selling
was led by TCS (USD 130mn). However they bought Infosys (USD 80mn).
However net selling in the sector has reduced the U/W for the domestic MFs as
the net selling was lower than the weight of software in the Domestic MF portfolio.
25% Free float norms to be implemented next
year
As per SEBI norms all private sector listed companies need to have 25% public
holdings by June 2013 (for PSUs it is August 2013). In the BSE 500 there are 66
companies which need to lower their promoter holding to 75%. At the current
price this means these companies together need to raise Rs1214bn (~22bn US$)
just to sell the extra promoter holding. Large portion of this is from the public
sector companies. Some of the observations:
There are 24 public sector companies in BSE 500 which need to lower the
promoter holding. These companies together need to raise Rs1039bn (~19bn
US$). Among the large PSUs which need to lower Govt.’s stake are: Coal
India, MMTC, NMDC, Hind Copper, SAIL and NHPC.
Large Indian private companies required to increase their float are: Wipro,
DLF, Reliance Power, Adani Enterprise, L&T Finance and JP Infratech.
Some of the MNC companies may like to delist rather than dilute their stake.
MNCs with more than 75% promoter holding are: Oracle Fin Services,
Gillette India, Astrazenecea, BOC India, and Blue Dart.
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