FIIs corner over 24% stake in MSCI firms

Foreign institutional investors (FIIs) have been steadily increasing their stake in Indian companies and, at present, hold over 24 per cent in companies included in the Morgan Stanley Capital Index (MSCI).

This translates into a holding of around 40 per cent of the free-float or non-promoter holding in the companies.

In a recent global report, investment bank Merrill Lynch stated that FIIs hold almost 15 per cent of the market capitalisation of the top 200 companies, which translates into 30 per cent of their free float.

"Apart from valuations, it is probably this large FII holdings in frontline stocks that is driving FII money into mid-caps," Merrill Lynch analysts said in the report.

Another interesting fact which emerges from the study is that mutual funds and FIIs are acting in ways quite contrary to each other.

Domestic MFs are underweight on all sectors which FIIs are overweight on. Their buying and selling pattern is also contrary to each other.

While fund houses have been sellers in stocks such as Hindalco, Tata Steel and Cipla, FIIs have been heavy buyers in each of these stocks.

MFs were marginal buyers in Wipro in which FIIs have been sellers. It was only in Reliance, L&T and Ranbaxy that the two groups have acted in tandem, the report points out.

For FIIs, the two overweight sectors are banking and software, while the under-owned sectors are consumer staples. FIIs have increased their stake in a large number of mid-cap banks.

FIIs have also been buying into Hindustan Lever. There has also been a sharp increase in FII holdings in Cipla.

FIIs have been overweight on software, though the weightage has fallen dramatically in recent quarters, while domestic investors are underweight on the sector.

FIIs are marginally overweight in pharmaceuticals, while domestics have a lower weight in big cap companies.

Incidentally, Life Insurance Corporation, which is another large player in the stock market, has been selling stocks which have been lapped up by FIIs and on the flip side, buying stocks sold by FIIs.