Raise holdings to 29.6% in the Dec quarter.
The Indian financial sector continues to find favour with foreign institutional investors (FIIs).
According to a Citigroup report, FIIs’ shareholding in the financial sector has gone up from 27.89 per cent to 29.6 per cent during the quarter under review.
But the overall holding of FIIs in India Inc has fallen by 1.42 per cent to 15.5 per cent during the same period. They have trimmed their holdings in sectors such as energy, industrial and information technology (IT).
Experts are divided. Some said that the main reason for this was low valuations of banks. In the September-October period, when equity market went for a major correction, banking stocks were singled out for some serious battering.
Prateek Agarwal, Head (Equities), Bharti Axa Investment Managers, said, “Though there is some stress due to the asset quality, most of it would be reversible if the economic growth continues at 7 per cent. The earnings growth is good and the third-quarter numbers are above expectations.”
However, in a recent report, Credit Suisse analysts Nilesh Jasani and Arya Sen have raised concerns on high FII exposure to the financial sector. They have pointed out that the sector would be extremely vulnerable to large-scale selloffs, if asset quality concerns rise.
| BUCKING THE TREND | |||
| Sector | FIIs Shareholding (%) | ||
| Jun 08 | Sep 08 | Dec 08 | |
| Finance | 26.63 | 27.89 | 29.60 |
| Energy | 13.34 | 13.59 | 12.10 |
| Industrial | 11.99 | 11.28 | 10.55 |
| Information technology | 11.40 | 10.67 | 9.22 |
| Materials | 9.70 | 8.13 | 6.80 |
| Source: Citi Research | |||
FIIs currently hold 29.6 per cent of their portfolio in the financial sector, followed by mutual funds and insurance companies at 21 per cent and 19 per cent respectively.
The sector has the second-highest weightage in indices such as the Nifty and MSCI. At least 16.4 per cent of the stocks comprising the Nifty are from the financial sector, while the MSCI has 22.5 per cent.
The general view is that Indian banks are better placed than their global peers because of high capital adequacy ratio and lower leverage.
Hitesh Agrawal, Head (Research), Angel Broking, said, “Even if their non-performing assets (NPAs) double, the book value would not be severely hit. Credit growth will pick up two quarters down the line and we see banks being outperformers for the next two-three years.”
