FPIs up stake in financials, pare pharma holdings

FPI holding has risen by more than 1% in 73 entities

Foreign portfolio investors (FPIs), the biggest non-promoter shareholders in the Indian stock market, increased their allocation to several financial services companies in the June quarter, while reducing holdings in pharmaceutical and health care firms.

An analysis of Capitaline data for 450 companies that have disclosed their shareholding pattern for the quarter shows FPIs raised their stake in 211 companies, nearly 50 per cent of the companies analysed.

Their holding has risen by more than one per cent in 73 entities. These include several financial services firms such as Capital First (17.3-percentage point increase), Equitas Holdings (6.3 percentage points) and Bharat Financial (3.4 percentage points). A number of banks such as Federal Bank (6.9 percentage points), Karnataka Bank (2.7 percentage points), South Indian Bank (2.7 percentage points) and State Bank of India (1.9 percentage points) also saw a substantial rise FPI stake.

Illustration: Ajay Mohanty

In terms of value, HDFC Bank saw the highest increase in FPI investment, of Rs 19,000 crore, followed by HDFC (Rs 15,237 crore) and Kotak Mahindra Bank (Rs 11,181 crore).

“Finding value is difficult in this market and one space that is still showing growth is banking and financial services. On the other hand, pharma companies have shown de-growth and are facing headwinds in the US market, which might have compelled FPIs to pare stake,” said G Chokkalingam, managing director, Equinomics Research & Advisory.

The first quarter results for banks are expected to be broadly similar to that of the previous quarter, according to a recent note by Kotak Institutional Equities. “Better treasury income and NII (net interest income) growth would help offset a high provision requirement for bad loans… we expect positive trends on asset quality to continue with slippages declining q-o-q (quarter-on-quarter) for nearly all banks,” said the note, adding that non-banking financial companies (NBFCs) are expected to report strong performance as the operating environment improves from demonetisation-related stress and higher retail home loan sales.

Among the losers, Reliance Communications (6.7 per cent), Delta Corp (4.7 per cent) and Apollo Tyres (4.4 per cent) saw the highest decline in percentage terms. Pharma and health care companies such as Divi’s Lab (2.7 per cent), Biocon (2.6 per cent) and Fortis Healthcare (1.9 per cent) were among those that saw a substantial decrease in foreign institutional holding. In value terms, Sun Pharmaceutical (Rs 8,849 crore) and Lupin (Rs 6,011 crore) saw the most decline in FPI stake.

Indian pharma stocks have been de-rated by 10 per cent over the past one year but with price erosion expected to increase, a further de-rating is expected. “Higher price erosion leads to lower earnings growth and returns and therefore drives de-rating. We expect price erosion to increase to 10-12 per cent from 7-8 per cent currently due to higher competition from increasing FDA (US Food and Drug Administration) approvals, which we expect to grow greater than 50 per cent in the next two years… and increasing approvals of new entrants,” said a May 22 note by Credit Suisse.

FPIs have invested about Rs 11,700 crore in Indian stocks in the quarter ended June 2017 and Rs 56,000 crore in the first six months of the year.