FIIs holding in Nifty stocks at six-year high
Cheap money in the US and Europe contributes to the trend as foreign funds chase firms less prone to global shocks
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| While promoters’ shareholding in the Nifty companies, at 47.90%, is at a three-quarter low, that of the domestic institutional investors is at a five-quarter low of 12.42%. Photo: Mint |
Mumbai: Foreign institutional investors’ (FIIs) shareholding in Nifty companies rose to the highest in at least six years in the quarter ended September even as public shareholding fell to its lowest in as many years as retail investors continued to stay away from the market while foreign funds chased companies that are less prone to global shocks.
Cheap money in the US and Europe and a surge in global liquidity seem to have contributed to the trend.
FII shareholding in 44 companies of the National Stock Exchange Ltd’s bellwether Nifty-50 index, at 18.38% of the total equity, is the highest in at least 25 quarters, according to data provider Capitaline.
The data does not reveal FII preference for any particular sector and their shareholdings have risen across segments.
Public shareholding in these companies was at 7.06%, a 25-quarter low.
The 30-share Sensex of BSE also shows the same trend.
All Sensex companies are part of the Nifty basket.
Listed companies file their shareholding pattern with the stock exchanges every quarter.
“Global investors argue that India is a place where they would like to put money to work because the other options do not seem attractive enough. What are the ‘there is no alternative’ factors about India, given that the macro is hardly appealing? We think it boils down to India’s relative corporate fundamentals, which appear more stable,” Morgan Stanley Research said in its 12 October India Strategy Report.
“India has suffered the least downward earnings revisions this year across major indices. Growth has also been better than for most major market groups,” it added.
While promoters’ shareholding in the Nifty companies, at 47.90%, is at a three-quarter low, that of the domestic institutional investors is at a five-quarter low of 12.42%.
photo
“The risk appetite of Indian mutual funds and retail investors is relatively less compared with the global financial institutions. It is risk money that is chasing Indian stocks. Besides, the rupee depreciation gave them (FIIs) a discount which was attractive,” said C. J. George, chairman and managing director, Geojit BNP Paribas Ltd.
The rupee had gained 6.36% against the dollar since it hit a low of 57.16 in June.
The domestic currency had appreciated more between mid-September and the first week of October, but has given up a large part of the gain in the past two weeks.
When the currency weakens, the dollar-denominated funds that come from FIIs enjoy a higher purchasing power because they can buy more stocks for less dollars.
The government’s move to push policy reforms despite stiff resistance put up by the opposition as well as its political allies also boosted market sentiment and FII inflows.
Among other things, the government last month made it easier for foreign companies to invest in aviation, broadcast and retail companies here.
The change in key government ministries along with a policy offensive have led to increased FII flows.
FII inflows have been close to $7.49 billion in the last three months and an aggregate $18 billion for the calendar year to date.
“Overall, in a world of easy liquidity, long-term investors continue to focus on fundamental investment opportunities that can play out in the next decade or so, and India certainly qualifies for the same,” said Sivasubramanian K.N., chief investment officer, Franklin Equity—India, Franklin Templeton Investments.
Apart from a lower local currency, the variety of opportunities available in the Indian equity market and the resilience of the Indian corporate sector, too, seem to have attracted foreign funds.
“Unlike in 2011, the earnings trend in 2012 mirrors India’s long-term record in earnings. Over time, not only has earnings growth been comparable with that of the rest of the world, but the earnings stream has also exhibited markedly lower volatility. This characteristic of strong and more predictable earnings tilts the debate on premium valuations in India’s favour,” the Morgan Stanley report said.
“India’s diversified market is an advantage. India’s sectoral diversification seems the best across major emerging markets. Low standard deviation on sector weights and a low degree of single-sector dominance underpin this point, allowing for more portfolios diversification,” it added.
The 30-share Sensex of BSE is currently trading at 15.97 times current earnings and the index has a forward price-to-earnings multiple of 14.82, according to Bloomberg data.
In 328 of the BSE-500 companies, FII shareholding at 14.35% is now at the second highest in the last six years while domestic institutional investors’ shareholding is at the lowest in as many years.
“The next lap of India’s interest rate cycle may impart a large impetus to equities. The FII inflow could sustain, despite lower gains because the yield gap to the Libor (London inter-bank offered rate—an international benchmark for interest rates) is well below the mean. Both the spells of high FII inflow into Indian equities during 2012 followed the months when the yield gap between the Libor and the Nifty dipped close to the decade’s low,” Avendus Securities Pvt. Ltd said in its 19 October research report.
With key equity indices notching up substantial gains in the current year, demand for Indian stocks from foreign funds is expected to continue.
While the Sensex has gained 21.06% in the calendar year so far, the Nifty is up 23.08%. Both are among the best performing indices in the world.
Another positive influence, according to the Avendus Securities report, is the gradual return of a gain in the older equity assets, despite the 7.3% year-on-year fall of the rupee against the dollar. “The combined effect of the low yield gap and rising gains may sustain FII inflow over the medium term.”
According to Sivasubramanian of Franklin Templeton, while short-term factors can lead to outflows like it has happened in the September quarter of this year, his house is convinced about the long-term attractiveness of Indian markets to global investors.
Cheap money in the US and Europe and a surge in global liquidity seem to have contributed to the trend.
FII shareholding in 44 companies of the National Stock Exchange Ltd’s bellwether Nifty-50 index, at 18.38% of the total equity, is the highest in at least 25 quarters, according to data provider Capitaline.
The data does not reveal FII preference for any particular sector and their shareholdings have risen across segments.
Public shareholding in these companies was at 7.06%, a 25-quarter low.
The 30-share Sensex of BSE also shows the same trend.
All Sensex companies are part of the Nifty basket.
Listed companies file their shareholding pattern with the stock exchanges every quarter.
“Global investors argue that India is a place where they would like to put money to work because the other options do not seem attractive enough. What are the ‘there is no alternative’ factors about India, given that the macro is hardly appealing? We think it boils down to India’s relative corporate fundamentals, which appear more stable,” Morgan Stanley Research said in its 12 October India Strategy Report.
“India has suffered the least downward earnings revisions this year across major indices. Growth has also been better than for most major market groups,” it added.
While promoters’ shareholding in the Nifty companies, at 47.90%, is at a three-quarter low, that of the domestic institutional investors is at a five-quarter low of 12.42%.
photo
“The risk appetite of Indian mutual funds and retail investors is relatively less compared with the global financial institutions. It is risk money that is chasing Indian stocks. Besides, the rupee depreciation gave them (FIIs) a discount which was attractive,” said C. J. George, chairman and managing director, Geojit BNP Paribas Ltd.
The rupee had gained 6.36% against the dollar since it hit a low of 57.16 in June.
The domestic currency had appreciated more between mid-September and the first week of October, but has given up a large part of the gain in the past two weeks.
When the currency weakens, the dollar-denominated funds that come from FIIs enjoy a higher purchasing power because they can buy more stocks for less dollars.
The government’s move to push policy reforms despite stiff resistance put up by the opposition as well as its political allies also boosted market sentiment and FII inflows.
Among other things, the government last month made it easier for foreign companies to invest in aviation, broadcast and retail companies here.
The change in key government ministries along with a policy offensive have led to increased FII flows.
FII inflows have been close to $7.49 billion in the last three months and an aggregate $18 billion for the calendar year to date.
“Overall, in a world of easy liquidity, long-term investors continue to focus on fundamental investment opportunities that can play out in the next decade or so, and India certainly qualifies for the same,” said Sivasubramanian K.N., chief investment officer, Franklin Equity—India, Franklin Templeton Investments.
Apart from a lower local currency, the variety of opportunities available in the Indian equity market and the resilience of the Indian corporate sector, too, seem to have attracted foreign funds.
“Unlike in 2011, the earnings trend in 2012 mirrors India’s long-term record in earnings. Over time, not only has earnings growth been comparable with that of the rest of the world, but the earnings stream has also exhibited markedly lower volatility. This characteristic of strong and more predictable earnings tilts the debate on premium valuations in India’s favour,” the Morgan Stanley report said.
“India’s diversified market is an advantage. India’s sectoral diversification seems the best across major emerging markets. Low standard deviation on sector weights and a low degree of single-sector dominance underpin this point, allowing for more portfolios diversification,” it added.
The 30-share Sensex of BSE is currently trading at 15.97 times current earnings and the index has a forward price-to-earnings multiple of 14.82, according to Bloomberg data.
In 328 of the BSE-500 companies, FII shareholding at 14.35% is now at the second highest in the last six years while domestic institutional investors’ shareholding is at the lowest in as many years.
“The next lap of India’s interest rate cycle may impart a large impetus to equities. The FII inflow could sustain, despite lower gains because the yield gap to the Libor (London inter-bank offered rate—an international benchmark for interest rates) is well below the mean. Both the spells of high FII inflow into Indian equities during 2012 followed the months when the yield gap between the Libor and the Nifty dipped close to the decade’s low,” Avendus Securities Pvt. Ltd said in its 19 October research report.
With key equity indices notching up substantial gains in the current year, demand for Indian stocks from foreign funds is expected to continue.
While the Sensex has gained 21.06% in the calendar year so far, the Nifty is up 23.08%. Both are among the best performing indices in the world.
Another positive influence, according to the Avendus Securities report, is the gradual return of a gain in the older equity assets, despite the 7.3% year-on-year fall of the rupee against the dollar. “The combined effect of the low yield gap and rising gains may sustain FII inflow over the medium term.”
According to Sivasubramanian of Franklin Templeton, while short-term factors can lead to outflows like it has happened in the September quarter of this year, his house is convinced about the long-term attractiveness of Indian markets to global investors.
