FIIs turn defensive in Q4, pump in $5.8 bn

Underweight on industrials, consumer, energy; banking and tech remained preferred sectors

Foreign institutional investors (FIIs) may have turned net sellers of Indian stocks in May, but their optimism remained elevated in the March quarter. In the March quarter, FIIs bought equities worth $5.81 billion and their holding in BSE 200 (including ADRs & GDRs) has touched 25.3 per cent in the March quarter, up from 24.6 per cent in the December quarter. The value of their holding, however, jumped from $320 billion in December to $343 billion in the March quarter. The optimism may have waned in May, with FIIs selling equities worth a billion dollars, but analysis of the previous quarter is indicative of changing preferences.

With earnings not showing any material improvement as demand remains weak, foreign investors increased exposure to defensive stocks during the quarter. A look at the quarter gone by makes an interesting analysis as it shows how foreign investors behaved and how their outlook to select stocks and sectors changed. Even as the metals sector continues to face demand and pricing challenges, FIIs bought metals & mining stocks in the March quarter apart from technology and pharmaceutical.

Continued buying in defensive sectors - pharma and technology - suggests that their belief in a broad-based recovery is fast coming under pressure. The Coal India OFS (offer for sale) has been lapped up by FIIs. Foreign investors pumped in ~8113 crore in Coal India during the quarter, taking their holding in the company up from 5.5 per cent in December quarter to nine per cent in March. Other than Coal India, FIIs substantially increased their stake HDIL, Indiabulls Real Estate and Dewan Housing. They reduced their holding in L&T Finance, LIC Housing Finance and J&K Bank. At the end of the March quarter, FII holdings in L&T Finance dropped from 5.4 per cent in the December quarter (2014) to nil.

The top 20 companies with highest FII holding continued to be the usual suspects like HDFC, ICICI Bank, Infosys, Dr Reddy's, HDFC Bank, IndusInd Bank, Axis Bank. Even as FIIs sold shares in ICICI Bank and Axis Bank, FIIs remain overweight on HDFC, ICICI Bank and Infosys. Analysis done by Kotak Institutional Equities shows that FIIs remained overweight on banking and technology, while they remained underweight on consumer, industrials and energy.