Foreign institutional investors (FIIs) have turned wary about the prospects of the Indian equity market since February following the introduction of long-term capital gains tax (LTCG) on equity in Union Budget 2018, a Rs 12,700 crore scam in Punjab National Bank (PNB) and repeated signals from the US Fed to hike interest rates rapidly.
Several global financial services firms, including CLSA and Morgan Stanley, have since cut India’s weightage in their scheme of things.
FIIs have been offloading stocks in the cash market in the recent past. They offloaded shares worth a net of around Rs 12,000 crore between February 1 and March 7 after having pumped in Rs 13,781 crore in January and Rs 49,729 crore in the whole of last year.
With clear signs of FIIs losing their conviction on India and the global liquidity squeeze posing a clear threat of capital outflow from emerging markets, including India, some analysts say FII-heavy stocks are likely to witness freaky fortunes in the coming months.
“There is a little concern for the FII-heavy stocks in the short term, as they have been selling Indian equities continuously and there are no positive triggers right now for them to change their outlook,” says G Chokkalingam, Head of Research at Equinomics Research and Advisory.
Domestic equity benchmarks BSE Sensex and NSE Nifty are already down about 9 per cent from their respective all-time high levels hit on January 29, 2018.
On Friday, the benchmark indices traded with gains after staging a solid rebound in Thursday’s trade, when the Sensex leapt nearly 318 points, or 1 per cent.
FIIs hold huge clout in the domestic market, holding around 18 per cent of India’s total market capitalisation.
Within the BSE200 basket, they held more than 25 per cent stake at the end of December in as many as 58 companies, whose stocks appear to be at the maximum risk should the FII outflow becomes rapid.
Going by shareholding data available with Ace Equity, some of the top NBFCs face the biggest risk.
FPIs held substantial stakes in non-banking financial companies such as HDFC (74.76 per cent), Bharat Financial Inclusion (60.71 per cent), Indiabulls Housing Finance (55.34 per cent) and Shriram Transport Finance (49.73 per cent) as on December 31, 2017.
In the banking pack, FIIs held 48.06 per cent, 47.34 per cent, 43.20 per cent and 40.57 per cent in Axis Bank, ICICI Bank, YES Bank and HDFC Bank, respectively, at the end of 2017.
“FIIs are reacting to the news and developments happening on both global as well as domestic fronts. For India, both domestic and global news have not been too conducive. These are short-term disruptions, but they would not continue for a long time. However, it will continue at least for the coming few months,” said Himanshu Srivastava, Senior Research Analyst, Manager Research at Morningstar Investment Adviser India.
Amid the global sell-off, there has been risk aversion among the FIIs, which raising the risk of their pulling money out of emerging markets like India.
“Investors should understand that India is just one segment for FIIs. So if the country is not attractive for them, they can invest somewhere else,” Srivastava said in a chat with ETNow.
Stocks like Apollo Hospital, Hero MotoCorp, Zee Entertainment, Bharti Infratel, Mindtree, UPL, The Federal Bank, Crompton Greaves and Infosys have high levels of shareholding among foreign investors.
From across sectors, stocks where FIIs hold over 15 per cent stakes have risen up to 600 per cent over the past one year.
The list includes Indiabulls Venture (up 586 per cent), Indiabulls Real Estate (up 144 per cent), Edelweiss Financial Services (up 91 per cent), Tata Global Beverages (up 88 per cent), Jubilant FoodWorks (up 87 per cent) and Jindal Steel and Power (up 86 per cent), among others.
Nitasha Shankar, Senior Vice President and Head of Research, YES Securities, said post the Union Budget, the Indian stock market has been on a roller-coaster ride. In recent times, it has been hovering in the negative territory.
“This is largely related to the PSU banking stocks which have been ruffled with news flows and developments related to one of the largest PSU banks. This has had a negative impact on the headline indices, considering that banking stocks in general and PSU bank scrips in particular hold a substantial weightage in the benchmark indices,” she said.
NSE’s Nifty index is down 1,017 points to 10,154 as of March 7 from its all-time peak of 11,171 hit on January 29. The 30-pack BSE Sensex has pulled back over 3,410 points to 33,033 from 36,443 during this period.
Milan Sharma, Director, Rivergate Capital, says a trend reversal in FII flows is imminent.
India is not looking as attractive, as it was few months back. Going forward, there will be a reversal in the trend along with a fresh flow of inflows from domestic institutional investors, he said.
“Considering the Rs 12,000-13,000 crore inflow to the equity market through the SIP route, we do not think one needs to be too cautious. We will also see some reversal in FII flows soon,” Sharma said.