FIIs ramp up stakes in Dec quarter

Foreign institutional investors' (FII) appetite for Indian equities grew in the quarter ended December 2004.

According to a Morgan Stanley report, FII ownership in India's top 50 stocks increased to 21.1 per cent at the end of the quarter ended December 2004, which was 1.1 percentage points higher than at the end of the September quarter. The FII pumped in a record $3.9 billion in the quarter ended December 2004.

"FIIs were fervent buyers of Indian equities, but at the same time they preferred to adopt a relatively cautious portfolio approach. A moderate portfolio churn, stagnant average sector bet size and a drop in stock bet size signify relatively low risk levels. However, flows into mid-caps expanded to record levels of $1.1 billion during the quarter. FIIs adopt a barbell portfolio strategy "" overall risk seems higher than earlier," the report stated. Bharti Tele-Ventures and State Bank of India continued to remain the FII favourites.

FIIs holding in Bharti increased by 70 basis points to 2.7 per cent at the end of the December 2004 quarter, compared with 2 per cent at the end of the September 2004 quarter.

FIIs' holdings in SBI increased by 40 basis points from 2.9 per cent to 3.3 per cent. In terms of net flows, NTPC, TCS, BTL, ONGC and Infosys topped the list.

However, in order to accommodate the larger exposure across Indian stocks, the foreign portfolio investors have pared their holdings in the top 20 companies by 50 basis points in the aggregate to 3.1 per cent during the quarter ended December 2004.

The quarter ended December 2004 was special in many ways as it marked a significant shift in the behavior of FIIs from previous quarters. With the US dollar depreciating sharply in November, risk appetite increased, and this is reflected in the ownership data, said the report.

"India continues to grab a high share of flows into emerging markets relative to its benchmark weight. We estimate share inflows at twice India's benchmark weight for the markets we track," the Morgan Stanley report said.

Global emerging market investors are also overweight India by around 200 bps, based on the data the report collected from EmergingPortfolio .com Fund Research.

This position is lower than what it was at the start of 2004 but continues to be well over historical levels. The ownership data further underscore the point that FII sentiment toward India is strong.

For the quarter ended December 2004, the FII stake in India's top 50 companies by market cap rose 1.1 per cent quarter on quarter to 21.1 per cent, the best quarterly rise in four quarters, the report added.

The extent of buying for the quarter ended December 2004 hit an all-time high of $3.9 billion, exceeding the previous high of $3.6 billion in the quarter ended December 2003.

The FII purchase to sales ratio rose during the quarter to its highest since the December 2003 quarter, indicating the obvious strong interest in owning Indian stocks.