07 August 2011

JPMorgan::DII vs. FII Vol 3: no major decline in Hindalco institutional ownership even as stock declines 10% q/q

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DII vs. FII Vol 3: no major decline in Hindalco
institutional ownership even as stock declines 10% q/q


 HNDL saw a sharp stock correction but hardly any institutional ownership
change: The most intriguing data point in the June quarter institutional
ownership pattern across India’s metals and mining universe is the very modest
decline in FII and DII holdings in HNDL. Put against this is the relatively sharp
decline in HNDL stock price, which fell 10% (average quarterly price) and 25%
from peak to trough price for the quarter. In our view, the relatively high level
of institutional holding makes HNDL susceptible to further sell downs in the
event of negative news flow and/or earnings pressure.
 FII buying in COAL continues, while DII sell down their holdings in the
stock: FII holdings in COAL increased further, accounting for 64% of free float
as of Jun-11. The total FII holding in COAL was at 6.4% as of Jun-11, which
has nearly doubled since listing. However, the DII holding in the stock declined
during the quarter from 1.7% in Mar-11 to ~1.55% as of Jun-11.
 DII increase holdings in TATA and JSP modestly, while lowering it in
STLT, HNDL, SESA and HZL: DII ownership saw a modest increase in
TATA and JSP mainly, while holdings in STLT and HNDL were pared down.
DII ownership in HNDL has been declining every quarter for the last four
quarters.
 FII holding increases in SESA and COAL but declines in all the other key
mining equities: FII ownership in SESA increased 0.4% to 24.4%, but declined
in most key mining equities, with the largest FII decline seen in JSPL (down
0.4% to 23%, the lowest since June-10) and JSW (down 0.4% to 24.1%, the
lowest level since March-10). FII holdings have declined every quarter in JSP
since Sept-10, while it has declined every quarter in JSW since March-10 (6
consecutive quarters). FII holdings in TATA also declined to 19.7% from 20%
the previous quarter. FII holdings had increased sharply in the March quarter
post the QIP.
 COAL substituting other mining equities? Since the listing of COAL, FII
holdings of key Indian mining equities (adjusted for average price of the quarter)
has seen a 17% increase to c.$19.3bn and has increased by $3bn in the same
time frame. COAL accounted for $3.3bn of the June quarter average FII mining
mcap. Ex-COAL, FII holdings in terms of mcap have actually fallen, given both
stock price declines and absolute holding level declines. The increasing weight
age of COAL (in absolute terms, it was the single-largest FII holding in the
Indian mining universe) indicates, we think, that investors are willing to own
only COAL in the current macro uncertainty, which is confirmed by the
increasing valuation differentials between COAL and the likes of
TATA/STLT/JSTL (COAL at FY13E P/E of 15x v/s TATA/STLT/JSTL/HNDL
at 7x/7x/7x/8x each based on Bloomberg consensus).

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