Even as the flow of foreign funds into Indian equities remains strong, FIIs seem willing to take bets on turnaround candidates, while shunning the likely underperformers.
Post the sharp sellout in markets in 2008, foreign institutional investors (FIIs) have once again started accumulating Indian stocks. Notably, estimates suggest that India’s average weight in Global Emerging Markets (GEM) Funds reached an all-time high of 7.91 per cent as on March 2010. Even in the Asia-Pacific Funds, India's weight in the portfolio allocation has increased in the recent past, thereby leading to increased inflows. FIIs have been net buyers to the tune of Rs 57,538 crore year-to-date in 2010, as against Rs 84,278 crore in the whole of last year (2009).
As FIIs continue to invest in new companies or churn their existing investments, we looked at some of these changes in their India portfolio in the June quarter to understand their likes and dislikes in terms of individual stocks and possible reasons for the moves .
| THE FII REPORT CARD | |||
| In % | Foreign investors' holding | ||
| Jun ‘10 | Mar ‘10 | % chg | |
| DECLINE IN FII STAKE | |||
| Aban Offshore | 6.43 | 10.64 | -39.60 |
| GTL | 15.02 | 24.10 | -37.70 |
| I O B | 6.82 | 9.29 | -26.60 |
| Areva T&D | 0.96 | 1.30 | -26.20 |
| PTC India | 15.16 | 19.28 | -21.40 |
| Suzlon Energy | 12.15 | 15.27 | -20.40 |
| Tata Steel | 17.18 | 21.30 | -19.30 |
| Oil India | 1.86 | 2.30 | -19.10 |
| India Infoline | 21.58 | 26.34 | -18.10 |
| RNRL | 5.89 | 7.05 | -16.50 |
| RISE IN FII STAKE | |||
| Tech Mahindra | 1.57 | 0.91 | 72.50 |
| Bajaj Finserv | 9.14 | 5.57 | 64.10 |
| GMR Infra. | 13.82 | 9.13 | 51.40 |
| UCO Bank | 4.56 | 3.05 | 49.50 |
| Oracle Fin.Serv. | 4.87 | 3.79 | 28.50 |
| Vijaya Bank | 5.32 | 4.35 | 22.30 |
| IFCI | 16.68 | 14.04 | 18.80 |
| Great Offshore | 8.25 | 6.97 | 18.40 |
| Sh.Renuka Sugar | 27.74 | 23.45 | 18.30 |
| Bharat Forge | 14.44 | 12.35 | 16.90 |
| Figures reflect trend in FII holdings Source: CapitaLine | |||
The gainers
Post the buyout and restructuring of Satyam, Tech Mahindra has turned around the former’s performance. Notably, news about its settlement with Upaid and the company winning back old customers has also been positive. All of which is also visible in its share prices and analysts having a buy rating on the stock. FIIs, who were shying away from the company, have now increased their stake, which saw a significant rise recently.
GMR Infra has also attracted foreign investors recently. The company has commissioned the new world-class Terminal 3 at Delhi Airport and there are expectations of monetisation of the land around. Higher traction in the road segment, coupled with better outlook for the power business and possible listing of GMR Energy (its subsidiary) are among the positives.
Most favoured
Among the list, FIIs have constantly increased their stake in some of the PSU banks, which were available at relatively lower valuations. Stocks such as UCO Bank, Vijaya Bank, Dena Bank and IFCI have seen consistent increase in their FIIs’ holding. This rise in FII holdings could also be attributed to the improving fundamentals, better business environment and infusion of capital by the government. In case of IFCI, it is again in the news over the possibility of a strategic investor being brought in and a potential candidate for a new bank licence. Apart from banks, Bharat Forge has gained consistent attention of FIIs, driven by the turnarounds in its business, led by the revival in the automobile sector.
The losers
Till about March, FIIs were increasing their stake in Aban Offshore. However, they have cut it significantly in the June quarter. The stock got de-rated after one of its vessels got damaged recently, as well as the broader selloff in offshore stocks post BP’s oil spill and lower crude oil prices. As the telecom story takes a back seat, companies like GTL, which provide telecom infrastructure services, have seen reduction in the FII stake significantly from 24.10 per cent in March to 15 per cent in the June quarter. Among the prominent names, Tata Steel saw FIIs reduce their holding in the company, even as it reported a turnaround (consolidated basis) led by Corus turning profitable in the June quarter. The decline in FII holding is consequent to concerns over the company’s outlook , especially due to its large exposure to European markets, where demand and steel prices remain under pressure.
Suzlon, too, has suffered, probably as it derives a majority of its revenue from foreign markets, where the demand for its products has shrunk and realisations have fallen. Besides, its high debt and pressure on operating margins have led to increasing losses. Analysts are sceptical over the possibility of its prospects improving in the near to medium term.
Out of favour
Notably, there are some companies where the FIIs’ holding has consistently declined in the past four quarters. These include Punj Lloyd, India Infoline, Tata Global (earlier Tata Tea), Oil India, IOB and Videocon Industries. Punj Lloyd is in the news for its poor performance and deteriorating outlook for its business segments. Broking firm India Infoline also saw its FIIs consistently lower their holding in the company. Part of this may be attributed to the possibility of an equity dilution, which the management denies, saying the FII stake is still large at over 25 per cent.