FIIs are not unabashedly bullish about the Indian stock market any more, as is evident from the $6.4 billion of net redemptions by them so far in 2008. That accounts for about 11 per cent of the cumulative investments put in by them since they first started investing in India in 1993.
However, if these numbers bring to mind an image of FIIs scrambling en masse to the exit doors, that may not be entirely right either.
In the first seven months of 2008, registrations by FIIs seeking an entry into Indian markets have continued to climb. Gross purchases by FIIs, the actual indicator of foreign investor activity in India, are greater than last year. And shareholding pattern disclosures for June show that the FIIs have increased their stakes in quite a few stocks in the mid- and small-cap spaces.
This article looks at some of these trends and identifies stocks that featured in the FIIs’ buy list in the last quarter. .
Higher registrations
Total FII registrations with SEBI, which were 1,219 in December 2007, were 1,457 at end-July. New registrations by FIIs, which slowed between February and April, went up significantly between May and July. January, when the stock market touched its pinnacle at 21k, saw 60 new FIIs and 151 sub-accounts being registered.
The number of new registrations, however, dwindled with the correction, to bottom out at just 15k in April 2008. The months that followed did see a revival in registrations, though, with 54 FIIs and 113 sub-accounts registered in July. In the last three months, 123 new foreign institutions registered with SEBI.
There was a sharp increase in the number of sub-accounts too (376). The new entrants may not rush to make their first investments in Indian stocks; but the pick-up in registrations is surely indicative of sustained FII interest in the Indian markets.
Last year’s crackdown on investments through the participatory note route has probably prompted investors with more long-term India ambitions to register with SEBI, despite the more stringent disclosure norms.
A profile of the new registrants shows quite a few institutions from West Asia — particularly Qatar, Oman and the United Arab Emirates. Also seen were institutions from Poland, the Netherlands, Ireland and France, apart from FII havens such as the US, Singapore, Mauritius and the UK.
Quite a few of the registrants were pension funds and insurance companies, suggesting that their investments in stocks, as and when they happen, may be of a lasting nature; the entities include Qatar Insurance, The Financial Corporation (Oman), College Retirement Equities Fund (US), Amansa Capital (long-term returns; US), UPMC Health System (US), National Social Security Fund (China). One interesting registration in July was from Nalanda India Fund, a PE firm investing only in public enterprises.
Higher gross purchasesIt is usual, when analysing FII data, to look at the “net” picture alone — that is, the difference between the total purchases and sales put through by FIIs. But what has been happening to “gross” purchases, which are more reflective of the total quantum of buying or selling by FIIs in a period?
Though FIIs have recorded net sales of Rs 5,36,800 crore so far in 2008, their gross purchases during the year were significantly higher than last year, totalling to Rs 4,93,884 crore till end-July, or 28 per cent higher than the gross purchases recorded in the corresponding period last year (Rs 3,83,957 crore). Of course, gross sales too have been much higher, at Rs 5,23,650 crore, against Rs 3,41,153 crore last year, resulting in a net sale of stocks.
However, the gross data certainly shows that overall FII interest in Indian stocks has, if anything, risen this year and that, for every FII in exit mode, there are others willing to pump money into this market.
It is also possible that the FIIs which sold their holdings invested in new-found opportunities. The pace of FII ‘net’ selling in the Indian market also decelerated in recent months, from a level of Rs 5,011.50 crore in May, to Rs 1,445 crore in July. So, if FIIs have been pumping money selectively into the stock market, what have they been buying?
On screening the stocks in the BSE-500, the April-June quarter saw 190 stocks registering an increase in FII holdings. Interestingly, of the lot, there were 35 large-cap stocks (market capitalisation of over Rs 7,500 crore), while the others were all mid- and small-caps. In the list of stocks that saw a significant (4 per cent plus) increase in FII holdings, there were seven stocks in the small-cap and five stocks in the mid-cap space.
The only stock from the large-cap space was Cairn India. But the space where FIIs chose to rejig their portfolios most significantly (sales and purchases of over 4 per cent) was in the small-caps. The number of small-cap stocks recording a big net “decrease” in FII holdings was much higher than the number which saw an increase.
Bulk Deals RouteFIIs displayed no specific sector bias and acquired and sold stocks from a range of sectors. Also, they didn’t ramp up stakes on too many large-caps, nor did they reduce them. But for ACC (which saw a 6 per cent fall in FII stakes), no large-cap stock saw a fall in FII holding of over 4 per cent. The assumption that some FIIs could have sold their holdings to invest in new stocks is also supported by disclosures made to the exchanges on bulk deals. Such players as Morgan Stanley, Merrill Lynch Capital Markets, Fidelity Investments and Goldman Sachs Investments were seen re-shuffling their portfolios and were active on both the buy and sell sides. Morgan Stanley was seen selling Balrampur Chini, Elder Pharma, Gujarat NRE Coke, and buying LIC Housing Finance, Shree Renuka Sugars and Temptation foods. Fidelity Funds, on the other hand, sold Saregama, Piramal Life Sciences, ING Vysya Bank, Britannia Industries, Apollo Hospitals, Alembic and bought , Rallis India and Titan Industries.
July, in particular, saw fresh buying by FIIs that registered late last year — Credit Suisse Singapore and CLSA Mauritius, among others such as Warhol, Swiss Finance and Morgan Stanley, that continued to display optimism. The major selling in the last two months was by Deutsche Securities, Templeton Mutual Fund and ABN Amro Bank.
The moves by FIIs were company-specific and provided no signals as to their overall stance on sectors. With sufficient proof that FIIs haven’t deserted India, domestic investors may look for some suitable stocks to add to their portfolios at present.
