Foreign institutional investors (FIIs) reduced their exposure to the banking and metal sectors during July-September amid concerns of a slowdown in economic growth, the euro zone debt worries and high inflation back home.
Among individual stocks, State Bank of India (SBI), Axis Bank and Union Bank of India from the banking pack and Tata Steel, Hindalco and JSW Steel from the metal space saw FIIs reduce their stake by more than 200 basis points (bps) each.
Among the sectoral indices on the Bombay Stock Exchange (BSE), the Metal and Bankex were the worst performers. The two sectoral indices fell more than 15 per cent each, against a 12.7 per cent drop in the benchmark index Sensex. At Rs 10,565 crore, foreign funds reported the highest net outflow from the Indian market since the December 2008 quarter.
The significant increase in interest rates over the past 18 months by the Reserve Bank of India (RBI) and the Supreme Court order to ban mining operations in some districts of Karnataka prompted foreign investors to cut their holdings.
“The metal space will continue to face challenges amid high raw material costs, low demand and fresh escalation of European debt crisis. The base metal prices are likely to remain under pressure in the near term on demand concerns due to a slowdown in global growth, led by monetary tightening in China and escalating debt crisis in Europe,” according to Angel Broking.
Ratings downgrade
The FII holding in the country’s largest lender, SBI, dipped below ten per cent for the first time in two years at the end of September, as foreign investors cut their holdings by 223 basis points to 8.65 per cent, just before Moody’s downgraded the bank on October 4 on capital and non-performing assets concerns.
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HSBC Bank (Mauritius) A/c Cinnamon Capital, a foreign investor that had a 1.77 per cent stake in SBI at the end of the June quarter, reduced its holding to below one per cent.
SBI’s credit growth has dropped to an 18-month low on account of the RBI’s aggressive anti-inflationary stance of frequently raising interest rates. Analysts feel rising interest rates will adversely impact the asset quality and profitability of banks.
| LIMITING EXPOSURE | ||||
| FIIs stake in % | Price in Rs | |||
| 30-Sep | Chg (bps)* | 14-Oct | % chg* | |
| LOSER | ||||
| Educomp Solutions | 29.22 | -572.00 | 259.50 | -33.79 |
| BEML | 8.68 | -410.00 | 514.00 | -11.46 |
| Axis Bank | 31.92 | -353.00 | 1104.15 | -14.34 |
| Aurobindo Pharma | 16.53 | -268.00 | 128.45 | -25.54 |
| JSW Steel | 21.51 | -263.00 | 601.65 | -31.82 |
| GAINERS | ||||
| Gujarat Pipavav Port | 26.28 | 319.00 | 69.75 | 7.57 |
| Hexaware Techno | 42.91 | 267.00 | 88.80 | 27.60 |
| Arvind Ltd | 12.83 | 253.00 | 106.40 | 36.41 |
| Petronet LNG | 14.72 | 235.00 | 155.90 | 14.93 |
| Shree Cement | 8.50 | 227.00 | 1835.00 | 4.51 |
| *Change over June 30, 2011 Source : BSE | ||||
“The deterioration in asset quality will be driven primarily by slippages in banks’ corporate and small and medium enterprises loan portfolios. This will be caused by increasing interest rates, high input prices and an expected moderation in economic growth,” said Pawan Agrawal, director, Crisil.
Of the BSE-500 companies, as many as 175 filed their shareholding pattern, which suggested FIIs reduced their stake in 88 firms during the third quarter of this calendar year. FIIs increased their holdings in 82 companies and kept their positions unchanged in the remaining five.
BEML, Educomp Solutions, LIC Housing Finance, Aurobindo Pharma and Bajaj Hindustan are some of the prominent companies where FIIs reduced their exposure. On the other hand, Hexaware Technologies, Gujarat Pipavav Port, Arvind Ltd, Petronet LNG and Shree Cement saw FIIs raise their holdings by over 200 bps each.