FII stake in top firms back to June 2005 levels

Change (%)

7-Sep7-Dec8-MarLast 3  monthsLast 6 months 1Firstsource Solu28.7627.75.07-22.63-23.69 2Ganesh Housing35.5439.924.97-14.93-10.57 3Indiabulls Fin45.9446.7434.2-12.54-11.74 4Sasken Comm Tech17.2318.466.33-12.13-10.9 5Sujana Towers42.7936.8926.35-10.54-16.44 6BOC India14.1112.14.04-8.06-10.07 7Balrampur Chini26.8532.0524.18-7.87-2.67 8Strides Arcolab28.7128.4220.92-7.5-7.79 9Cairn India11.4810.923.53-7.39-7.95 10Nagarjuna Fert 10.3114.527.44-7.08-2.87 Source: Citi Investment Research, BSE, NSE  "The main reason for FIIs being negative on emerging markets especially India is scorching inflation and high interest rates which has led to softening of growth in the region", said the research head of a leading FII.  Considering that BSE 500 constitutes more than 90 per cent of the market cap of Bombay Stock Exchanges, this dip in ownership translates to FIIs actually cutting exposure to the Indian market. The scenario is in quite in contrast to bull run of the last five years when FIIs pumped in more than $52 billion.  While promoters have been on a buying spree, increasing their stake in BSE 500 companies, public shareholders continued to be the most gullible class of investors. Public shareholding in BSE 500 companies plummeted to 9 per cent as against 9.4 per cent earlier.  The drop in foreign ownership has been largely picked by promoters whose share of the market continues northward march. The uptrend continues even after accounting for public offerings where free-float is quite low. According to Citigroup, the continued rise in promoter ownership signals a strong underlying confidence in markets.  Although promoters hiking stake is not a new phenomenon as they prefer this mode to buy cheap in a falling market, for FIIs it has been the single largest quarterly fall in their shareholding. Experts say that part of it may be attributed to the Securities and Exchange Board of India's clampdown on Participatory Notes.  Andrew Holland, Managing Director, DSP Merrill Lynch said, " Since markets have risen in last few days, it could be an opportunity for shareholders to adjust the ownership structure. Globally, if markets continue to fall further, we may see some more correction and flight of capital from emerging markets."  The companies that saw the highest decline in FII shareholding include Firstsource Solutions where their stake dropped from 27.7 per cent in December 2007 to 5 per cent in March 2008. Similarly, Indiabulls Financial services saw FII ownership slip from 46.74 per cent in December 07 to 34.2 per cent in March 08.  The drop in FII ownership this quarter had the highest impact on the energy sector where FIIs have extended their underweight to almost 920 basis points vis-a-vis the benchmark MSCI India. Currently, they seem to be betting on industrials, telecom, consumer discretionary and materials.  Domestic mutual funds maintained their ownership at 8 per cent in the BSE 500 universe, continuing to be bullish on industrials and consumer sector. They sold IT services, financials and energy vis-a-vis their benchmark Nifty.